ECO157 - Chap 8 - Exam II

When a good is taxed, a. both buyers and sellers of the good are made worse off. b. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy. c. only buyers are made worse off, because they ultimately bear the burden of the tax. d. only sellers are made worse off, because they ultimately bear the burden of the tax

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

Concerning the labor market and taxes on labor, economists disagree about a. the size of the tax on labor. b. the size of the deadweight loss of the tax on labor. c. whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. d. nothing.

b. The size of the deadweight loss of the tax on labor

Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is a. $4.50. b. $0. c. $1.50. d. $3.

c. 1.50

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is a. $2,250. b. $1,750. c. $4,500. d. $3,000.

a. 2,250

Refer to Figure 8-5. Which of the following combinations will maximize the deadweight loss from a tax? a. Supply2 and Demand2 b. Supply2 and Demand1 c. Supply1 and Demand2 d. Supply1 and Demand1

a. Supply2 and Demand2

The deadweight loss from a tax per unit of good will be smallest in a market with a. inelastic supply and inelastic demand. b. inelastic supply and elastic demand. c. elastic supply and inelastic demand. d. elastic supply and elastic demand.

a. inelastic supply and inelastic demand

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of a. 9. b. 16. c. 5. d. 24.

b. 16

Suppose Yolanda needs a dog sitter so that she can travel to her sister's wedding. Yolanda values dog sitting for the weekend at $200. Rebecca is willing to dog sit for Yolanda so long as she receives at least $175. Yolanda and Rebecca agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax? a. The $30 tax b. The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda c. The lost benefit to Yolanda of being unable to hire a dog sitter because Yolanda is the one who would pay the tax d. The maximum value that Yolanda would pay for dog sitting Hide Feedback

b. The lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda

What happens to the total surplus in a market when the government imposes a tax? a. Total surplus increases but by less than the amount of the tax. b. Total surplus decreases. c. Total surplus increases by the amount of the tax. d. Total surplus is unaffected by the tax

b. Total surplus decreases.

Refer to Figure 8-3 . As a result of the tax, consumer surplus decreases by.... a. $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80. b. $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. c. $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. d. $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80.

d. $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80

Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is a. $5. b. $10. c. $7.50. d. $2.50.

d. $2.50

Refer to Figure 8-2. The amount of the tax on each unit of the good is a. $1. b. $4. c. $9. d. $5.

d. $5

If the labor supply curve is very elastic, a tax on labor a. has a relatively small impact on the number of hours that workers choose to work. b. raises enough tax revenue to offset the loss in welfare. c. results in a large tax burden on the firms that hire labor. d. has a large deadweight loss.

d. has a large deadweight loss

hen a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will a. decrease tax revenue and increase the deadweight loss. b. increase tax revenue and increase the deadweight loss. c. decrease tax revenue and decrease the deadweight loss. d. increase tax revenue and decrease the deadweight loss.

d. increase tax revenue and decrease the deadweight loss.