Ch 08 Quiz

Use Exhibit to answer question If a tax is placed on the product in this market, consumer surplus is the area

A

Use Exhibit to answer question If a tax is placed on the product in this market, total surplus is the area

A + B + C + D

Use Exhibit to answer question If there is no tax placed on the product in this market, total surplus is the area

A + B + C + D + E + F

Use Exhibit to answer question If there is no tax placed on the product in this market, consumer surplus is the area

A + B + E

Use Exhibit to answer question If a tax is placed on the product in this market, tax revenue paid by the buyers is the area

B

Use Exhibit to answer question If a tax is placed on the product in this market, tax revenue paid by the sellers is the area

C

Use Exhibit to answer question If there is no tax placed on the product in this market, producer surplus is the area

C + D + F

Use Exhibit to answer question If a tax is placed on the product in this market, producer surplus is the area

D

Use Exhibit to answer question If a tax is placed on the product in this market, deadweight loss is the area

E + F

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a

Laffer curve

Use Exhibit to answer question Which of the following is true with regard to the burden of the tax in Exhibit?

The sellers pay a larger portion of the tax because supply is more inelastic than demand

Which of the following would likely cause the greatest deadweight loss?

a tax on cruise line tickets

Taxes on labor income tend to encourage

a. workers to work fewer hours. b. second earners to stay home. c. the elderly to retire early. d. the unscrupulous to enter the underground economy.

Deadweight loss is greatest when

both supply and demand are relatively elastic

A tax on gasoline is likely to

cause a greater deadweight loss in the long run when compared to the short run

When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has

caused a deadweight loss

The reduction of a tax

could increase tax revenue if the tax had been extremely high

When a tax on a good starts small and is gradually increased, tax revenue will

first rise and then fall

If a tax on a good is doubled, the deadweight loss from the tax

increases by a factor of four

Suppose the supply of diamonds is relatively inelastic. A tax on diamonds would generate a

small deadweight loss and the burden of the tax would fall on the seller of diamonds