Ch. 8

When a tax on a good starts small and is gradually increased, tax revenue will?

First rise and then fall.

Which of the following would likely cause the greatest deadweight loss?

A tax on cruise line tickets

Deadweight loss is greatest when?

Both supply and demand are relatively elastic

A tax on gasoline is likely to?

Cause a greater deadweight loss in the long run when compared to the short run.

When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has?

Caused a deadweight loss.

The reduction of a tax?

Could increase tax revenue if the tax had been extremely high.

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a?

Laffer curve.

Suppose the supply of diamonds is relatively inelastic. A tax on diamonds would generate a?

Small deadweight loss and the burden of the tax would fall on the seller of diamonds.

Taxes on labor income tend to encourage?

Workers to work fewer hours. Second earners to stay home. The elderly to retire early. The unscrupulous to enter the underground economy.

If a tax on a good is doubled, the deadweight loss from the tax?

increases by a factor of four.