Quiz 6

Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax

Supply2 and Demand 2

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

creates a deadweight loss of $15 per day.

Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $1.

$3

Refer to Figure 8-2. The amount of tax revenue received by the government is

$5

Refer to Figure 8-3. The deadweight loss associated with this tax amounts to

$80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

Erin will now clean her own house

Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Roland and Karla still can engage in a mutually-agreeable trade.

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

The tax on airline tickets increases from $20 per ticket to $60 per ticket.

Refer to Figure 8-1. Suppose the government imposes a tax of P'' - P. The area measured by J + K + I represents

consumer surplus before the tax

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I + Y represents the

deadweight loss due to the tax

Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

decrease by 1 unit

Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

decrease by 2 dollars

The deadweight loss from a tax per unit of good will be smallest in a market with

inelastic supply and inelastic demand.

If a tax shifts the demand curve upward,

we cannot infer anything because the shift described is not consistent with a tax.

. Suppose the government imposes a tax of P'-P'''. The area measured by K + L represents

tax revenue

Refer to Figure 8-6. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

D1

Market Characteristic A Demand is very elastic relative to supply. B Demand is very inelastic relative to supply. C Supply is very elastic relative to demand. D Supply is very inelastic relative to demand. ​ ​ Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?

Markets B and D only

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

producer surplus after the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents

producer surplus before the tax.

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

quadruples