Econ Chapter 8

When a tax is imposed on the buyers of a good, the demand curve shifts

downward by the amount of the tax

Taxes on labor taxes may distort labor markets greatly if

the number of hours many part-time workers want to work is very sensitive to the wage rate

to fully understand how taxes affect economic well-being, we must

compare the reduced welfare of buyers and sellers of the amount of revenue the government raises

The decrease in total surplus that results from a market distortion, such as a tax, is called a

deadweight loss

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

$2,250

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

$20

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

$250

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 $800 per month in tax revenue. we can conclude that the equilibrium quantity of widgets has fallen by

40 per month

TRUE OR FALSE: economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is no consensus that the relevant elasticities of demand and supply are very low

False

TRUE OR FALSE: when a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax

False

TRUE OR FALSE: the Laffer curve is the curve showing how tax revenue varies as the size of the tax varies

True

TRUE OR FALSE: when the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency

True

the deadweight loss from a tax per unit of good will be smallest in a market with

inelastic supply and inelastic demand

a tax levied on the sellers of a good shifts the

supply curve upward by the size of the tax

the government's benefit from a tax can be measured by

tax revenue