Chapter 8

The deadweight loss from a three dollar tax will be largest in a market with

Elastic supply and elastic demand

The benefit to sellers of participating in a market as measured by the

Producer surplus

Which of the following scenarios is not consistent with the Laffer curve

The tax rate is very high, and tax revenue is very high.

In order for Henry George's single tax on land not to distort economic incentives the tax would have to be on

Raw land

The Laffer curve relates

the tax rate to tax revenue raised by the tax

Suppose that the government imposes a tax on dairy products the dead weight loss from this tax will likely be greater in the

Fifth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the fifth year

The dead weight loss from a two dollar tax will be smallest in a market with

Inelastic demand and inelastic supply

Taxes cause dead weight losses because they

Lead to losses in surplus for consumers and for producers that when taken together exceed tax revenue collected by the government. distort incentives to both buyers and sellers. prevent buyers and sellers from realizing some of the gains from trade

For good B the supply curve is the typical upward sloping straight line and the demand curve is the typical downward sloping straight line when good B is taxed the area on the relevant supply and demand graph that represents

The governments tax revenue is a rectangle the deadweight loss of the tax is a triangle the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle

The amount of dead weight loss that results from a tax of a given size is determined by

The price elasticities of demand and supply

According to the economist Milton Friedman the least bad tax is a tax on

The value of unimproved land

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as

TxQ

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

buyers of the good will bear most of the burden of the tax

Total surplus with a tax is equal to

consumer surplus plus producer surplus plus tax revenue

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

deadweight loss

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same

Since the amount of land is fixed, the total supply of land is

perfectly inelastic

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

supply of the product is more elastic than the demand for the product