Chapter 8

Suppose the government imposes a tax of P'-P'''. The tax revenue is measured by the area

K+L

A tax levied on the sellers of a good shifts the

supply curve upward (or to the left).

As a result of the tax, buyers effectively pay

$32 for each unit of the good and sellers effectively receive $16 for each unit of the good

Suppose the government imposes a tax of P'-P'''. The area measured by K+L represents

Tax revenue

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

downward by the amount of the tax

Suppose the government imposes $1 tax in each of the four markets represented supply Curves S1,S2,S3, and S4. The deadweight will be the smallest in the market represented by

inelastic= smaller deadweight loss Answer S1

Suppose the government imposes $1 tax in each of the four markets represented supply Curves S1,S2,S3, and S4. The deadweight will be the largest in the market represented by

larger deadweight loss means more elastic Answer: S4

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same

As the size of the tax rises, the deadweight loss

rises and tax revenue first rises, then falls

As a result of the tax, the consumer surplus decreases by

160, producer surplus decreases by 160, tax revenue by 240, and deadweight loss by 80

Suppose the government imposes a tax of P'-P'''. The deadweight loss due to the tax is measured by the area

I+Y

Suppose the government imposes a tax of P'-P'''. Total surplus before the tax is measured by the area

Before the tax! answer: I+J+K+L+M+Y

If the economy is at point B on the curve, than an increase in the tax rate will

increase deadweight loss of the tax and decrease the tax revenue.

If the economy is at point A on the curve, then a small increase in the tax rate will

increase the deadweight loss of the tax and increase tax revenue

suppose the government increases the size of a tax by 20 percent. the deadweight loss from the tax

increases by more than 20 percent

An increase in the size of a tax is most likely to increase tax revenue in a market with

inelastic demand and inelastic supply

when a tax is placed on a product, the price paid by buyers

rises and the price received by sellers falls

As a result of the tax

the market experiences a deadweight loss of $80

Suppose the government imposes a tax of P'-P'''. The area measured by J+K+L+M represents

total surplus after tax

Suppose the government imposes a tax on of P'-P'''. The area measured by I+J+K+L+M+Y represents

total surplus before tax