Chapter 8

Refer to Figure 8-2. The amount of tax revenue received by the government is $2.50. $4. $5. $9.

$5.

Refer to Figure 8-9. The loss of consumer surplus as a result of the tax is $4,000. $6,000. $2,000. $8,000.

$6,000.

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by 25 per month. 50 per month. 75 per month. 100 per month.

50 per month.

Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area F. B+C. A. C+H.

B+C.

Refer to Figure 8-6. The tax results in a deadweight loss that amounts to $1,500. $600. $900. $1,800.

$1,500.

Suppose Ashley needs a dog sitter so that she can travel to her sister's wedding. Ashley values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $175. Ashley and Cami agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Ashley and Cami worse off by a total of $30. $25. $10. $5.

$25.

Refer to Figure 8-4. The tax results in a loss of producer surplus that amounts to $45. $90. $210. $255.

$255.

Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area C+F. G. C. F.

C+F.

Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area C+H. F. A. D+H.

D+H.

Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax? Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1) Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1) Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1) Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on buyers of the good. sellers of the good. both buyers and sellers of the good. We cannot infer anything because the shift described is not consistent with a tax.

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

When a tax is placed on a product, the price paid by buyers rises, and the price received by sellers rises. rises, and the price received by sellers falls. falls, and the price received by sellers rises. falls, and the price received by sellers falls.

rises, and the price received by sellers falls.

It does not matter whether a tax is levied on the buyers or the sellers of a good because sellers always bear the full burden of the tax. buyers always bear the full burden of the tax. buyers and sellers will share the burden of the tax. None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.

buyers and sellers will share the burden of the tax.

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

tax revenue.

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. loss in consumer surplus due to the tax. loss in producer surplus due to the tax. total surplus before the tax.

deadweight loss due to the tax.

The loss in total surplus resulting from a tax is called a deficit. economic loss. deadweight loss. inefficiency.

deadweight loss.

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

demand curve downward (or to the left).

Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase from $600 to $800. decrease from $600 to $300. remain unchanged at $600. increase from $300 to $800.

increase from $600 to $800.

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

producer surplus before the tax.

To fully understand how taxes affect economic well-being, we must compare the consumer surplus to the producer surplus. price paid by buyers to the price received by sellers. reduced welfare of buyers and sellers to the revenue raised by the government. consumer surplus to the deadweight loss.

reduced welfare of buyers and sellers to the revenue raised by the government.

Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed, producer surplus decreases by $13. the deadweight loss amounts to $6. the amount of the good that is sold remains unchanged. consumer surplus decreases by $13.

the deadweight loss amounts to $6.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents total surplus before the tax. total surplus after the tax. consumer surplus before the tax. deadweight loss from the tax.

total surplus before the tax.

A $3.50 tax per gallon of paint placed on the sellers of paint will shift the supply curve downward by exactly $3.50. downward by less than $3.50. upward by exactly $3.50. upward by less than $3.50.

upward by exactly $3.50.

To measure the gains and losses from a tax on a good, economists use the tools of macroeconomics. welfare economics. international-trade theory. circular-flow analysis.

welfare economics.

Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is (P5-0) x Q5. ½ x (P8-0) x Q2. ½ x (P5-0) x Q5. (P8-0) x Q2.

½ x (P8-0) x Q2.