Econ 8
Which of the following would likely cause the greatest deadweight loss?
a tax on cruise line tickets
Which of the following is true with regard to a tax on labour income? Taxes on labour income tend to encourage
all the above
Deadweight loss is greatest when
both supply and demand are relatively elastic.
A larger tax always generates more tax revenue.
false
A tax on cigarettes would likely generate a larger deadweight loss than a tax on luxury boats.
false
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
Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would generate
a small deadweight loss and the burden of the tax would fall on the landlord.
A tax on petrol 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 than otherwise, the tax has
caused a deadweight loss.
The reduction of a tax
could increase tax revenue if the tax had been extremely high
A tax collected from buyers generates a smaller deadweight loss than a tax collected from sellers.
false
If John values having his hair cut at €20 and Mary's cost of providing the hair cut is €10, any tax on hair cuts larger than €10 will eliminate the gains from trade and cause a €20 loss of total surplus.
false
When a tax is placed on a good, the revenue the government collects is exactly equal to the loss of consumer and producer surplus from the tax.
false
A tax will generate a greater deadweight loss if supply and demand are inelastic.
false (elastic)
Deadweight loss is the reduction in consumer surplus that results from a tax.
false (the fall in total surplus from market distortions)
If a tax on a good is doubled, the deadweight loss from the tax
increases by a factor of four
A larger tax always generates a larger deadweight loss.
true
A tax causes a deadweight loss because it eliminates some of the potential gains from trade.
true
If a tax is doubled, the deadweight loss from the tax more than doubles.
true
If a tax is placed on a good and it reduces the quantity sold, there must be a deadweight loss from the tax.
true
If a tax is placed on a good in a market where supply is perfectly inelastic, there is no deadweight loss and the sellers bear the entire burden of the tax.
true
If an income tax rate is high enough, a reduction in the tax rate could increase tax revenue.
true
In general, a tax raises the price the buyers pay, lowers the price the sellers receive, and reduces the quantity sold.
true
A deadweight loss results when a tax causes market participants to fail to produce and consume units on which the benefits to the buyers exceeded the costs to the sellers.
ture
When a tax on a good starts small and is gradually increased, tax revenue
will first rise and then fall