Question 1

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

Accepted Answer

A)   $50
B)   $30
C)   $25
D)   $0E) A) and D)
F) A) and C)

Question 2

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 3

Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A)   After the tax is imposed, the equilibrium quantity of diapers is 900 per month.
B)   The demand for diapers is more elastic than the supply of diapers.
C)   The deadweight loss of the tax is $12.50.
D)   The tax causes a decrease in consumer surplus of $380.E) All of the above
F) C) and D)

Question 4

Figure 8-10 
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is

Accepted Answer

A)   (P5-0)  x Q5.
B)   1/2 x (P5-0)  x Q5.
C)   (P8-0)  x Q2.
D)   1/2 x (P8-0)  x Q2.E) B) and D)
F) None of the above

Question 5

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Accepted Answer

A)   buyers of the good will bear most of the burden of the tax.
B)   sellers of the good will bear most of the burden of the tax.
C)   buyers and sellers will each bear 50 percent of the burden of the tax.
D)   the effective price paid by buyers will decrease as a result of the tax.E) C) and D)
F) None of the above

Question 6

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The total surplus with the tax is

Accepted Answer

A)   $2,000.
B)   $3,000.
C)   $15,000.
D)   $20,000.E) C) and D)
F) A) and B)

Question 7

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations: 
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:  What price will sellers receive and what price will buyers pay after the tax is imposed?

Accepted Answer

Buyers wil...

Question 8

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Accepted Answer

A)   $0.
B)   $1.
C)   $2.
D)   $3.E) None of the above
F) A) and C)

Question 9

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The per-unit burden of the tax on buyers is

Accepted Answer

A)   $3.
B)   $4.
C)   $5.
D)   $8.E) A) and B)
F) All of the above

Question 10

Figure 8-25 
-Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Accepted Answer

Consumer s...

Question 11

It does not matter whether a tax is levied on the buyers or the sellers of a good because

Accepted Answer

A)   sellers always bear the full burden of the tax.
B)   buyers always bear the full burden of the tax.
C)   buyers and sellers will share the burden of the tax.
D)   None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.E) B) and C)
F) C) and D)

Question 12

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by

Accepted Answer

A)   $20.
B)   $200.
C)   $300.
D)   $500.E) B) and C)
F) All of the above

Question 14

When a good is taxed, the burden of the tax

Accepted Answer

A)   falls more heavily on the side of the market that is more elastic.
B)   falls more heavily on the side of the market that is more inelastic.
C)   falls more heavily on the side of the market that is closer to unit elastic.
D)   is distributed independently of relative elasticities of supply and demand.E) None of the above
F) A) and B)

Question 15

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Accepted Answer

A)   $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
B)   $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
C)   $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
D)   $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.E) A) and C)
F) None of the above

Question 16

Figure 8-12 
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

Accepted Answer

A)   decrease by $3.
B)   increase by $2.
C)   decrease by $1.
D)   increase by $6.E) A) and D)
F) B) and C)

Question 17

Figure 8-21 
-Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

Accepted Answer

A)   Demand 1, and supply is represented by Supply 1.
B)   Demand 1, and supply is represented by Supply 2.
C)   Demand 2, and supply is represented by Supply 1.
D)   Demand 2, and supply is represented by Supply 2.E) C) and D)
F) All of the above

Question 18

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

Accepted Answer

A)   the maximum value that Rebecca would pay for dog sitting
B)   the $30 tax
C)   the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca
D)   the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the taxE) B) and C)
F) A) and B)

Question 19

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadwe...

Question 20

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The amount of tax revenue received by the government is

Accepted Answer

A)   $2.50.
B)   $4.
C)   $5.
D)   $9.E) B) and D)
F) B) and C)

Exam 8: Application: the Costs of Taxation

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of tax revenue received by the government is

Correct Answer
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When a good is taxed, the burden of the tax

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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

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The deadwe...
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Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

Correct Answer
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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by

Correct Answer
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Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

Correct Answer
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As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Correct Answer
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Figure 8-21 -Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

Correct Answer
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Figure 8-25 -Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

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Consumer s...
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When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Correct Answer
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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on buyers is

Correct Answer
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Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: What price will sellers receive and what price will buyers pay after the tax is imposed?

Correct Answer
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Buyers wil...
View Answer

It does not matter whether a tax is levied on the buyers or the sellers of a good because

Correct Answer
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Correct Answer
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The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Correct Answer
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Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is

Correct Answer
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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Correct Answer
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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The total surplus with the tax is

Correct Answer
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Exam 8: Application: the Costs of Taxation

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of tax revenue received by the government is

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When a good is taxed, the burden of the tax

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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct AnswerverifiedThe deadwe...View AnswerShow Answer

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by

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Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

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As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

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Figure 8-21 -Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

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Figure 8-25 -Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Correct AnswerverifiedConsumer s...View AnswerShow Answer

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on buyers is

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Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: What price will sellers receive and what price will buyers pay after the tax is imposed?

Correct AnswerverifiedBuyers wil...View AnswerShow Answer

It does not matter whether a tax is levied on the buyers or the sellers of a good because

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

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Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is

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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The total surplus with the tax is

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Correct AnswerverifiedShow Answer

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The deadwe...
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Consumer s...
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Buyers wil...
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