Question 1

To fully understand how taxes affect economic well-being,we must

Accepted Answer

A)  assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed.
B)  know the dollar amount of all taxes raised in the country each year.
C)  compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
D)  take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.E) A) and B)
F) B) and C)

Question 2

Figure 8-2
 
-Refer to Figure 8-2.Which of the following equations is valid for the loss in producer surplus caused by the tax?

Accepted Answer

A)  Loss of producer surplus = (1/2) (P₂ + P₁) (Q₁ + Q₂) .
B)  Loss of producer surplus = (1/2) (P₂ + P₁) (Q₁ - Q₂) .
C)  Loss of producer surplus = (1/2) (P₂ - P₁) (Q₁ + Q₂) .
D)  Loss of producer surplus = (1/2) (P₂ - P₁) (Q₁ - Q₂) .E) All of the above
F) C) and D)

Question 3

A tax placed on buyers of tires shifts

Accepted Answer

A)  the demand curve for tires downward, decreasing the price received by sellers of tires and causing the market for tires to expand.
B)  the demand curve for tires downward, decreasing the price received by sellers of tires and causing the market for tires to shrink.
C)  the supply curve for tires upward, decreasing the effective price paid by buyers of tires and causing the market for tires to expand.
D)  the supply curve for tires upward, increasing the effective price paid by buyers of tires and causing the market for tires to shrink.E) None of the above
F) B) and C)

Question 4

When a tax is levied on a good,the buyers and sellers of the good share the burden,

Accepted Answer

A)  provided the tax is levied on the sellers.
B)  provided the tax is levied on the buyers.
C)  provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers.
D)  regardless of how the tax is levied.E) A) and D)
F) All of the above

Question 5

The supply curve and the demand curve for a good are straight lines,and the good is taxed.When the tax is doubled,

Accepted Answer

A)  the base of the triangle that represents the deadweight loss quadruples.
B)  the height of the triangle that represents the deadweight loss doubles.
C)  the deadweight loss of the tax doubles.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 6

Scenario 8-2
Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28.
-Refer to Scenario 8-2.Stephanie's consumer surplus as a result of hiring Tom to mow her lawn is

Accepted Answer

A)  $3.
B)  $5.
C)  $8.
D)  $25.E) A) and D)
F) A) and C)

Question 7

When a tax on a good is enacted,

Accepted Answer

A)  buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.
B)  buyers always bear the full burden of the tax.
C)  sellers always bear the full burden of the tax.
D)  sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.E) A) and B)
F) C) and D)

Question 8

Figure 8-2
 
-Refer to Figure 8-2.Which of the following equations is valid for the deadweight loss of the tax?

Accepted Answer

A)  Deadweight loss = (1/2) (P₂ - P₁) (Q₂ + Q₁) 
B)  Deadweight loss = (1/2) (P₃ - P₁) (Q₂ + Q₁) 
C)  Deadweight loss = (1/2) (P₃ - P₂) (Q₂ - Q₁) 
D)  Deadweight loss = (1/2) (P₃ - P₁) (Q₂ - Q₁) E) A) and D)
F) None of the above

Question 9

When a good is taxed,

Accepted Answer

A)  both buyers and sellers of the good are made worse off.
B)  only buyers are made worse off, because they ultimately bear the burden of the tax.
C)  only sellers are made worse off, because the government holds them responsible for sending in the tax payments.
D)  neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.E) A) and B)
F) A) and C)

Question 10

A tax on a good

Accepted Answer

A)  raises the price that buyers effectively pay and raises the price that sellers effectively receive.
B)  raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
C)  lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
D)  lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.E) B) and C)
F) A) and D)

Question 11

Use the following graph shown to fill in the table that follows.

Accepted Answer

The answer of Use the following graph shown to fill...

Question 12

Figure 8-4
 
-Refer to Figure 8-4.Consumer surplus before the tax was levied is represented by area

Accepted Answer

A)  a.
B)  A + B + C.
C)  D + E + F.
D)  F.E) A) and D)
F) A) and C)

Question 13

Scenario 8-1
Ryan would be willing to pay as much as $100 per week to have his house cleaned. Tammy's opportunity cost of cleaning Ryan's house is $70 per week.
-Refer to Scenario 8-1.If Tammy cleans Ryan's house for $80,Tammy's producer surplus is

Accepted Answer

A)  $10.
B)  $70.
C)  $80.
D)  $100.E) A) and B)
F) A) and C)

Question 14

Because taxes distort incentives,they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 15

Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

Accepted Answer

A)  less elastic is the demand.for the good.
B)  less elastic is the supply of the good.
C)  smaller is the amount of the tax.
D)  All of the above are correct.E) A) and B)
F) A) and D)

Question 16

Which of the following scenarios is not consistent with the Laffer curve?

Accepted Answer

A)  The tax rate is very low and tax revenue is very low.
B)  The tax rate is very high and tax revenue is very low.
C)  The tax rate is very high and tax revenue is very high.
D)  The tax rate is moderate (between very high and very low)  and tax revenue is relatively high.E) B) and C)
F) All of the above

Question 17

Figure 8-2
 
-Refer to Figure 8-2.The per-unit burden of the tax on sellers is

Accepted Answer

A)  P₃ - P₁.
B)  P₃ - P₂.
C)  P₂ - P₁.
D)  Q₂ - Q₁.E) All of the above
F) A) and D)

Question 18

One negative aspect of Henry George's single tax on land is that,if it were applied today,

Accepted Answer

A)  the loss of surplus to landowners would be greater than the tax revenue raised.
B)  the deadweight loss would be much larger than the deadweight loss of alternative taxes.
C)  the tax would not raise enough revenue to pay for government spending.
D)  it would result in enormous harm to users of land.E) B) and C)
F) A) and D)

Question 19

Taxes on labor encourage all of the following except

Accepted Answer

A)  older workers to take early retirement from the labor force.
B)  mothers to stay at home rather than work in the labor force.
C)  workers to work overtime.
D)  people to be paid "under the table."E) B) and D)
F) All of the above

Question 20

Figure 8-2
 
-Refer to Figure 8-2.The equilibrium price before the tax is imposed is

Accepted Answer

A)  P₁.
B)  P₂.
C)  P₃.
D)  None of the above is correct.E) B) and D)
F) B) and C)

Exam 8: Application: the Costs of Taxation

One negative aspect of Henry George's single tax on land is that,if it were applied today,

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Figure 8-2 -Refer to Figure 8-2.The per-unit burden of the tax on sellers is

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Taxes on labor encourage all of the following except

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Scenario 8-1 Ryan would be willing to pay as much as $100 per week to have his house cleaned. Tammy's opportunity cost of cleaning Ryan's house is $70 per week. -Refer to Scenario 8-1.If Tammy cleans Ryan's house for $80,Tammy's producer surplus is

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When a good is taxed,

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The supply curve and the demand curve for a good are straight lines,and the good is taxed.When the tax is doubled,

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Because taxes distort incentives,they cause markets to allocate resources inefficiently.

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Figure 8-2 -Refer to Figure 8-2.Which of the following equations is valid for the deadweight loss of the tax?

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When a tax is levied on a good,the buyers and sellers of the good share the burden,

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Which of the following scenarios is not consistent with the Laffer curve?

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A tax placed on buyers of tires shifts

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To fully understand how taxes affect economic well-being,we must

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Figure 8-4 -Refer to Figure 8-4.Consumer surplus before the tax was levied is represented by area

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Scenario 8-2 Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. -Refer to Scenario 8-2.Stephanie's consumer surplus as a result of hiring Tom to mow her lawn is

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Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

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When a tax on a good is enacted,

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Figure 8-2 -Refer to Figure 8-2.Which of the following equations is valid for the loss in producer surplus caused by the tax?

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A tax on a good

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Use the following graph shown to fill in the table that follows.

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Figure 8-2 -Refer to Figure 8-2.The equilibrium price before the tax is imposed is

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