MRU6.3: Tax Revenue and Deadweight Loss

Q5: Which of the following calculations can be used to determine the amount of revenue generated by a tax? - (Buyer price − seller price) × After-tax quantity - Before-tax price × (Before-tax quantity − after-tax quantity) - Before-tax price × (Before-tax quantity − after-tax quantity) - (Seller price − buyer price) × After-tax quantity

A: (Buyer price − seller price) × After-tax quantity

Q10: Why was the luxury tax on yachts such an incredible failure? - Because the elasticity of the supply of yachts changed suddenly as a result of the tax. - Because the government neglected to consider that the demand for yachts is very elastic. - Because the government neglected to consider that the supply of yachts is very elastic. - Because the elasticity of the demand for yachts changed suddenly as a result of the tax.

A: Because the government neglected to consider that the demand for yachts is very elastic.

Q2: What does a tax do to consumer and producer surplus? - It reduces the sum of consumer and producer surplus but may increase one or the other. - It increases both consumer and producer surplus. - It reduces both consumer and producer surplus. - It increases the sum of consumer and producer surplus but may reduce one or the other.

A: It reduces both consumer and producer surplus.

Q4: Suppose the government imposes a tax on a market that was otherwise in equilibrium. What happens to the producer surplus? - All of it is transferred to buyers in the form of consumer surplus. - Some of it is transferred to the government in the form of tax revenue. - All of it is transferred to the government in the form of tax revenue. - Some of it is transferred to buyers in the form of consumer surplus.

A: Some of it is transferred to the government in the form of tax revenue.

Q1: Why does government levy taxes? - To raise revenue - To increase consumer surplus - To decrease producer surplus - To raise prices

A: To raise revenue

Q9: In general, it is better to tax goods with _______ demand because _______. - inelastic; fewer trades will be discouraged - elastic; fewer trades will be discouraged - elastic; more trades will be encouraged - inelastic; more trades will be encouraged

A: inelastic; fewer trades will be discouraged

Q7: The units of a good that would be traded without a tax, but that are not traded when a tax is imposed, generate: - no benefits for buyers, sellers, or the government. - producer surplus for sellers, but no consumer surplus. - tax revenue for the government. - consumer surplus for buyers, but no producer surplus.

A: no benefits for buyers, sellers, or the government.

Q3: Consumer surplus falls after a tax because the price buyers pay _______ and the quantity exchanged _______. - falls; falls - falls; rises - rises; falls - rises; rises

A: rises; falls

Q8: The value of the trades not made because of a tax is known as: - the tax revenue. - the deadweight loss of a tax. - the government surplus of a tax. - the tax disequilibrium.

A: the deadweight loss of a tax.

Q6: Deadweight loss is: - the net change in consumer and producer surplus. - the revenue generated by a tax. - only wastefulness caused by overproduction. - the value of the trades not made because of the tax.

A: the value of the trades not made because of the tax.