Global Econ - Chapter 8 Application of the Cost of Taxation - Concordia College

Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is a. $1. b. $2. c. $3. d. $5.

a. $1.

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve a. downward by exactly $2. b. downward by less than $2. c. upward by exactly $2. d. upward by less than $2.

a. downward by exactly $2.

As the size of a tax rises, the deadweight loss a. rises, and tax revenue first rises, then falls. b. rises as does tax revenue. c. falls, and tax revenue first rises, then falls. d. falls as does tax revenue.

a. rises, and tax revenue first rises, then falls.

Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is a. $60. b. $120. c. $160. d. $200.

b. $120.

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 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.

b. 1/2 x (P5-0) x Q5.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents a. tax revenue. b. consumer surplus before the tax. c. producer surplus after the tax. d. total surplus before the tax.

b. consumer surplus before the tax.

If the tax on a good is doubled, the deadweight loss of the tax a. increases by 50 percent. b. doubles. c. triples. d. quadruples.

b. doubles.

A tax levied on the buyers of a good shifts the a. supply curve upward (or to the left). b. supply curve downward (or to the right). c. demand curve downward (or to the left). d. demand curve upward (or to the right).

c. demand curve downward (or to the left).

The higher a country's tax rates, the more likely that country will be a. at the top of the Laffer curve. b. on the positively sloped part of the Laffer curve. c. on the negatively sloped part of the Laffer curve. d. experiencing small deadweight losses.

c. on the negatively sloped part of the Laffer curve.

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

c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers.

The Laffer curve illustrates that a. deadweight loss rises by the square of the increase in a tax. b. deadweight loss rises exponentially as a tax increases. c. tax revenue first rises, then falls as a tax increases. d. Both a) and b) are correct.

c. tax revenue first rises, then falls as a tax increases.

The amount of deadweight loss that results from a tax of a given size is determined by a. whether the tax is levied on buyers or sellers. b. the number of buyers in the market relative to the number of sellers. c. the price elasticities of demand and supply. d. the ratio of the tax per unit to the effective price received by sellers.

c. the price elasticities of demand and supply.

Refer to Figure 8-2. The amount of the tax on each unit of the good is a. $1. b. $4. c. $5. d. $9.

d. $9.

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the a. base of the triangle that represents the deadweight loss triples. b. height of the triangle that represents the deadweight loss triples. c. deadweight loss of the tax increases by a factor of nine. d. All of the above are correct.

d. All of the above are correct.

Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed, a. consumer surplus decreases by $11. b. producer surplus decreases by $11. c. the deadweight loss amounts to $6. d. All of the above are correct.

d. All of the above are correct.

Taxes cause deadweight losses because they a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. b. distort incentives to both buyers and sellers. c. prevent buyers and sellers from realizing some of the gains from trade. d. All of the above are correct.

d. All of the above are correct.

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline? a. The demand for gasoline becomes more inelastic. b. The slope of the supply curve for gasoline becomes steeper. c. The amount of the tax per gallon of gasoline increases. d. All of the above are correct.

d. All of the above are correct.

A tax a. lowers the price buyers pay and raises the price sellers receive. b. raises the price buyers pay and lowers the price sellers receive. c. places a wedge between the price buyers pay and the price sellers receive. d. Both b) and c) are correct.

d. Both b) and c) are correct.

A tax affects a. buyers only. b. sellers only. c. buyers and sellers only. d. buyers, sellers, and the government.

d. buyers, sellers, and the government.

Deadweight loss is the a. decline in total surplus that results from a tax. b. decline in government revenue when taxes are reduced in a market. c. decline in consumer surplus when a tax is placed on buyers. d. loss of profits to business firms when a tax is imposed.

d. loss of profits to business firms when a tax is imposed.