Microeconomics Ch 8

Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

$10

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

False

The most important tax in the U.S. economy is the tax on corporations' profits.

False

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 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.

Refer to Figure 8-3. Which of the following statements is correct?

Total surplus before the tax is imposed is $500.

Normally, both buyers and sellers of a good become worse off when the good is taxed.

True

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

True

The deadweight loss of a tax rises even more rapidly than the size of the tax.

True

Refer to Figure 8-5. Graph (a) and Graph (b) each illustrate a $4 tax placed on a market. In comparison to Graph (a), Graph (b) illustrates which of the following statements?

When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.

When a good is taxed,

both buyers and sellers of the good are made worse off.

A tax affects

buyers, sellers, and the government.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

increase tax revenue and decrease the deadweight loss.

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left).

If a tax shifts the supply curve downward,

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