Chapt 8 Quiz

If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss. a. True b. False

a. True

The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal. a. True b. False

a. True

The larger the deadweight loss from taxation, the larger the cost of government programs. a. True b. False

a. True

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue. a. True b. False

a. True

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency. a. True b. False

a. True

A tax on a good a. raises the price that buyers pay and lowers the price that sellers receive. b. lowers the price that buyers pay and raises the price that sellers receive. c. lowers the price that buyers pay and lowers the price that sellers receive. d. raises the price that buyers pay and raises the price that sellers receive.

a. raises the price that buyers pay and lowers the price that sellers receive.

A tax on a good causes the size of the market to increase. a. True b. False

b. False

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low. a. True b. False

b. False

The most important tax in the U.S. economy is the tax on corporations' profits. a. True b. False

b. False

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss? a. There is insufficient information to make this determination. b. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. c. The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. d. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon.

c. The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax a. triples. b. also doubles. c. quadruples. d. rises by a factor of 8.

c. quadruples

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is a. a right triangle. b. a triangle, but not necessarily a right triangle. c. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. d. bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers.

c. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.