ECON Exam 2 Chapt. 8

Candida teaches piano lessons to Ed once a week for $40. Ed values this service at $50 per week, while the opportunity cost of Candida's time is $25 per week. The government places a tax of $30 per week on piano teachers. After the tax, what is the total surplus? $50 $0 $15 $5

$0

Refer the Scenario. Dominic plows Soraya's driveway for $85. Dominic's opportunity cost of plowing Soraya's driveway is $55, and Soraya's willingness to pay Dominic to plow her driveway is $100. If Soraya hires Dominic to mow her lawn, Soraya's consumer surplus is $15. $100. $30. $85.

$15.

For automotive oil, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $1.50 per liter is imposed on automotive oil. The tax reduces the equilibrium quantity in the market by 500 units. The deadweight loss from the tax is $333. $750. $375. $650.

$375.

In the market for cigarettes, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $3.50 per pack is imposed on cigarettes. The tax reduces the equilibrium quantity in the market by 5,000 packs. The deadweight loss from the tax is $8,750. $17,500. $1,428.57. There is no deadweight loss from a tax on cigarettes because the socially optimal quantity is less than the market quantity.

$8,750.

Suppose a tax of $20 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $18,000 and decreases producer surplus by $18,000. The deadweight loss of the tax is $4,000. The tax decreased the equilibrium quantity of the good from 2,000 to 1,600. 4,000 to 2,000. 1,800 to 1,400. 3,200 to 1,600.

2,000 to 1,600.

In the market for ink cartridges for printers, 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 ink cartridges is 5,000 per month when there is no tax. Then a tax of $2.50 per cartridge is imposed. As a result, the government is able to raise $11,750 per month in tax revenue. We can conclude that the after-tax quantity of cartridges is 2,000 per month. 12,500 per month. 4,700 per month. 5,000 per month.

4,700 per month.

Refer the Scenario. Dominic plows Soraya's driveway for $85. Dominic's opportunity cost of plowing Soraya's driveway is $55, and Soraya's willingness to pay Dominic to plow her driveway is $100. Assume Dominic is required to pay a tax of $15 each time he plows a driveway. Which of the following results is most likely? Soraya now will decide to shovel her own driveway, and Dominic will decide it is no longer in his interest to plow Soraya's driveway. Dominic and Soraya still can engage in a mutually-agreeable trade. Soraya still is willing to pay Dominic to plow her driveway, but Dominic will decline her offer. Dominic still is willing to plow Soraya's driveway, but Soraya will decide to shovel her own driveway.

Dominic and Soraya still can engage in a mutually-agreeable trade.

Meghan is a massage therapist whose client, Reggie, pays $110 per hour-long session. Reggie values this service at $125 per hour, while the opportunity cost of Meghan's time is $85 per hour. The government places a tax of $8 per hour on massage therapists. After the tax, what is likely to happen in the market for massage therapy? Meghan and Reggie will agree to a new price somewhere between $93 and $125. The price will remain at $110, and Meghan will pay the $8 tax. Meghan and Reggie will agree to a new price somewhere between $77 and $102. Meghan will no longer offer massage therapy to Reggie because she must charge more than $125 in order to cover her opportunity costs and pay the tax.

Meghan and Reggie will agree to a new price somewhere between $93 and $125.

Refer to the Scenario. Dominic plows Soraya's driveway for $65. Dominic's opportunity cost of plowing Soraya's driveway is $55, and Soraya's willingness to pay Dominic to plow her driveway is $100. Assume Dominic is required to pay a tax of $15 each time he plows a driveway. Which of the following results is most likely if the price of the plowing services remains at $65? Soraya will no longer be willing to pay $65 dollars to get her driveway plowed, and Dominic will decide it is no longer in his interest to plow Soraya's driveway. Dominic and Soraya still engage in a mutually-agreeable trade at a price of $65. Soraya is still willing to pay Dominic $65 to plow her driveway, but Dominic will decline her offer. Dominic is still willing to plow Soraya's lawn for $65, but Soraya is no longer willing to pay that price.

Soraya is still willing to pay Dominic $65 to plow her driveway, but Dominic will decline her offer.

Which of the following statements is not correct regarding the imposition of a tax on cigarettes? The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. Because many cigarette smokers consider cigarettes to be a necessity, the sellers are likely to bear a smaller share of the tax burden than the buyers. The incidence of the tax depends upon the price elasticities of demand and supply. Because there are few close substitutes for cigarettes, the buyers are likely to bear a greater share of the tax burden than the sellers.

The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government.

In which of the following cases is it most likely that an increase in the size of a tax will increase tax revenue? The size of the tax before the increase was small relative to the size of the market. An increase in the size of a tax will always increase tax revenue. The size of the tax before the increase was medium relative to the size of the market. The size of the tax before the increase was large relative to the size of the market.

The size of the tax before the increase was small relative to the size of the market.

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $1.5 million to $6 million? The tax on motor oil increases from $1.00 per liter to $1.50 per liter. The change in the deadweight loss cannot be determined with the information provided. The tax on motor oil increases from $1.00 per liter to $2.00 per liter. The tax on motor oil increases from $1.00 per liter to $4.00 per liter.

The tax on motor oil increases from $1.00 per liter to $2.00 per liter.

Suppose a tax is imposed on the buyers of jet skis. The burden of the tax will fall entirely on the buyers of jet skis. be shared by the buyers and sellers of jet skis, but not necessarily equally. fall entirely on the sellers of jet skis. be shared equally by the buyers and sellers of jet skis.

be shared by the buyers and sellers of jet skis, but not necessarily equally.

When a good is taxed only buyers are made worse off if the tax shifts the demand curve. both buyers and sellers are made worse off, because the burden of the tax is shared. only sellers are made worse off if the tax shifts the demand curve. only buyers are made worse off, because sellers pass along the tax to buyers in the form of higher prices.

both buyers and sellers are made worse off, because the burden of the tax is shared.

Suppose that the government imposes a tax on corn used in the production of ethanol. The deadweight loss from this tax will likely be greater if corn is a necessity rather than a luxury, because demand and supply will be more inelastic. buyers and sellers have two months to adjust to the tax than if buyers and sellers have two years to adjust to the tax, because demand and supply will be more elastic. corn has few close substitutes rather than many close substitutes, because demand and supply will be more elastic. buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic.

buyers and sellers have two years to adjust to the tax than if buyers and sellers have two months to adjust to the tax, because demand and supply will be more elastic.

The decrease in total surplus that results from a market distortion, such as a tax, is called deadweight loss. disequilibrium. tax revenue. shortage.

deadweight loss.

Relative to a situation in which hotel rooms are not taxed, the imposition of a tax on hotel rooms causes the equilibrium quantity of hotel rooms to decrease, and the price buyers pay for hotel rooms to decrease. increase, and the price buyers pay for hotel rooms to increase. decrease, and the price buyers pay for hotel rooms to increase. increase, and the price buyers pay for hotel rooms to decrease.

decrease, and the price buyers pay for hotel rooms to increase.

If the labor supply curve is highly inelastic, a tax on labor will cause most workers to adjust the number of hours they work. causes a large deadweight loss. does not greatly distort market outcomes. will prompt more second earners to exit the workforce.

does not greatly distort market outcomes.

When a country is on the upward-sloping side of the Laffer curve, an increase in the tax rate will decrease tax revenue and decrease the deadweight loss. increase tax revenue and increase the deadweight loss. decrease tax revenue and increase the deadweight loss. increase tax revenue and decrease the deadweight loss.

increase tax revenue and increase the deadweight loss.

As more people become elderly, which allows them to choose when to retire, we would expect the deadweight loss from the federal income tax to increase, and the revenue generated from the tax to increase. decrease, and the revenue generated from the tax to decrease. increase, and the revenue generated from the tax to decrease. decrease, and the revenue generated from the tax to increase.

increase, and the revenue generated from the tax to decrease.

If the tax on a good is increased from $2.50 per unit to $7.50 per unit, the deadweight loss from the tax remains constant. increases by a factor of 16. increases by a factor of 4. increases by a factor of 9.

increases by a factor of 9.

A deadweight loss is a consequence of a tax on a good because the tax causes a shortage in the market. increases buyers' willingness to pay, but sellers are not willing to supply more. induces buyers to consume less, and sellers to produce less. decreases sellers' cost of production, but buyers are not willing to buy more.

induces buyers to consume less, and sellers to produce less.

The size of the deadweight loss that results from a tax on cola is smaller, the more substitutes there are for cola. less time cola sellers have to adjust to the tax. less of a necessity cola drinkers consider cola to be. more time cola sellers have to adjust to the tax.

less time cola sellers have to adjust to the tax.

The deadweight loss from a $1 tax per unit will be largest in a market with a short amount of time for sellers to adjust to a price change and many close substitutes. long amount of time for sellers to adjust to a price change and few close substitutes. short amount of time for sellers to adjust to a price change and few close substitutes. long amount of time for sellers to adjust to a price change and many close substitutes

long amount of time for sellers to adjust to a price change and many close substitutes.

Suppose a tax is imposed on the sellers of cigarettes. Due to the tax, consumers buy fewer cigarettes and producers sell fewer cigarettes resulting in a loss of total surplus called a deadweight loss. loss of consumer surplus and a gain in producer surplus called tax revenue. gain in tax revenue called a deadweight loss. loss of producer surplus and a gain in consumer surplus called tax revenue.

loss of total surplus called a deadweight loss.

Suppose policymakers agree to increase the size of the tax on gasoline. As a result, we can conclude that the tax revenue from the tax on gasoline increases. may increase, decrease, or remain the same. decreases. remains the same.

may increase, decrease, or remain the same.

The demand for mint chip ice cream is more elastic than the demand for candy. Suppose the government levies an equivalent tax on mint chip ice cream and candy. The deadweight loss would be larger in the market for mint chip ice cream than in the market for candy because the quantity of mint chip ice cream would fall by more than the quantity of candy. candy than in the market for mint chip ice cream because the quantity of candy would fall by more than the quantity of mint chip ice cream. mint chip ice cream than in the market for candy because the quantity of candy would fall by more than the quantity of mint chip ice cream. candy than in the market for mint chip ice cream because the quantity of mint chip ice cream would fall by more than the quantity of candy.

mint chip ice cream than in the market for candy because the quantity of mint chip ice cream would fall by more than the quantity of candy.

A tax placed on sellers of alcohol shifts the demand curve for alcohol to the left, decreasing the price received by sellers of alcohol and causing the quantity of alcohol to increase. supply curve for alcohol to the left, increasing the effective price paid by buyers of alcohol and causing the quantity of alcohol to decrease. demand curve for alcohol to the left, decreasing the price received by sellers of alcohol and causing the quantity of alcohol to decrease. supply curve for alcohol to the left, decreasing the effective price paid by buyers of alcohol and causing the quantity of alcohol to increase.

supply curve for alcohol to the left, increasing the effective price paid by buyers of alcohol and causing the quantity of alcohol to decrease.

The benefit that government receives from a tax is measured by the increase in producer surplus. deadweight loss. the shift in the supply curve. tax revenue.

tax revenue.

A $1.25 tax per pack of cigarettes placed on the sellers of cigrarettes will shift the supply curve to the right by exactly $1.25. to the left by less than $1.25. to the right by less than $1.25. to the left by exactly $1.25.

to the left by exactly $1.25.