HW 7

Refer to Figure 8-2. The per-unit burden of the tax on sellers is $2. $3. $4. $5.

Correct answer: $2.

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

Correct answer: $2.50.

Refer to Figure 8-2. The per-unit burden of the tax on buyers is $2. $3. $4 $5.

Correct answer: $3.

Refer to Figure 8-8. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax? Graph (a) Graph (b) Graph (c) Graph (d)

Correct answer: Graph (a)

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

Correct answer: Supply2 and Demand2

Refer to Figure 8-5. Graph (a) and Graph (b) each illustrate a $4 tax placed on a market. In comparison to Graph (a), Graph (b) illustrates which of the following statements? When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

Correct answer: When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.

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

Correct answer: deadweight loss.

Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to decrease by $2. increase by $3. decrease by $4. increase by $5.

Correct answer: decrease by $2.

Refer to Figure 8-2. The imposition of the tax causes the quantity sold to increase by 1 unit. decrease by 1 unit. increase by 2 units. decrease by 2 units.

Correct answer: decrease by 1 unit.

When a tax is imposed on a good, the supply curve for the good always shifts. demand curve for the good always shifts. amount of the good that buyers are willing to buy at each price always remains unchanged. equilibrium quantity of the good always decreases.

Correct answer: equilibrium quantity of the good always decreases.

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

Correct answer: has a large deadweight loss.

Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to decrease by $2. increase by $3. decrease by $4. increase by $5.

Correct answer: increase by $3.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will decrease tax revenue and decrease 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.

Correct answer: increase tax revenue and decrease the deadweight loss.

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

Correct answer: inelastic supply and inelastic demand.

If the size of a tax increases, tax revenue increases. decreases. remains the same. may increase, decrease, or remain the same.

Correct answer: may increase, decrease, or remain the same.

The size of a tax and the deadweight loss that results from the tax are positively related. negatively related. independent of each other. equal to each other.

Correct answer: positively related.

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.

Correct answer: producer surplus before the tax.

When a tax is levied on a good, the buyers and sellers of the good share the burden, provided the tax is levied on the sellers. provided the tax is levied on the buyers. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. regardless of how the tax is levied.

Correct answer: regardless of how the tax is levied.

Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is $0. $1. $2. $3.

Correct answer: $1.

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 $0. $1.50. $3. $4.50.

Correct answer: $1.50.

Refer to Figure 8-2. Total surplus without the tax is $10, and total surplus with the tax is $2.50. $10, and total surplus with the tax is $7.50. $20, and total surplus with the tax is $2.50. $20, and total surplus with the tax is $7.50.

Correct answer: $10, and total surplus with the tax is $7.50.

Refer to Figure 8-2. Producer surplus without the tax is $4, and producer surplus with the tax is $1. $4, and producer surplus with the tax is $3. $10, and producer surplus with the tax is $1. $10, and producer surplus with the tax is $3.

Correct answer: $4, and producer surplus with the tax is $1.

Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is $1.50. $3. $4.50. $6.

Correct answer: $4.50.

Refer to Figure 8-2. The amount of tax revenue received by the government is $2.50. $4. $5. $9.

Correct answer: $5.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.

Correct answer: consumer surplus after the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P'' - P. The area measured by J + K + I represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.

Correct answer: consumer surplus before the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I + Y represents the deadweight loss due to the tax. loss in consumer surplus due to the tax loss in producer surplus due to the tax total surplus before the tax

Correct answer: deadweight loss due to the tax.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents consumer surplus after the tax. consumer surplus before the tax. producer surplus after the tax. producer surplus before the tax.

Correct answer: producer surplus after the tax.

A tax on a good raises the price that buyers pay and raises the price that sellers receive. raises the price that buyers pay and lowers the price that sellers receive. lowers the price that buyers pay and raises the price that sellers receive. lowers the price that buyers pay and lowers the price that sellers receive.

Correct answer: raises the price that buyers pay and lowers the price that sellers receive.

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by K + L represents tax revenue. consumer surplus before the tax producer surplus after the tax. total surplus before the tax.

Correct answer: tax revenue.

Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is $0. $1. $2. $3.

Correct answer: $2.

Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $0. $1.50. $3. $4.50.

Correct answer: $3.

Refer to Figure 8-2. The loss of producer surplus as a result of the tax is $1. $2. $3. $4.

Correct answer: $3.

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

Correct answer: $5.

Refer to Figure 8-2. Consumer surplus without the tax is $6, and consumer surplus with the tax is $1.50. $6, and consumer surplus with the tax is $4.50. $10, and consumer surplus with the tax is $1.50. $10, and consumer surplus with the tax is $4.50.

Correct answer: $6, and consumer surplus with the tax is $1.50.

Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. Total surplus after the tax is measured by the area I + Y. J + K + L + M. I + Y + B. I + J + K + L + M + Y.

Correct answer: J + K + L + M.

Which of the following statements regarding a Laffer curve is the most plausible? Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. Reducing a tax rate can never increase tax revenue.

Correct answer: Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will fall entirely on the buyers of fast-food French fries. fall entirely on the sellers of fast-food French fries. be shared equally by the buyers and sellers of fast-food French fries. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

Correct answer: be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

When a good is taxed, both buyers and sellers of the good are made worse off. only buyers are made worse off, because they ultimately bear the burden of the tax. only sellers are made worse off, because they ultimately bear the burden of the tax. 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.

Correct answer: both buyers and sellers of the good are made worse off. only buyers are made worse off, because they ultimately bear the burden of the tax.

If a tax shifts the demand curve downward, we can infer that the tax was levied on buyers of the good. sellers of the good. both buyers and sellers of the good. We cannot infer anything because the shift described is not consistent with a tax.

Correct answer: buyers of the good.