chapter 8-- eco 2023

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward? a. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. b. As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. c. As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. d. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.

a. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.

The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like a. an upward-sloping curve. b. a U. c. an upside-down U. d. a horizontal straight line.

a. an upward-sloping curve.

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax a. quadruples. b. rises by a factor of 8. c. triples. d. also doubles.

a. quadruples.

As the size of a tax rises, the deadweight loss a. rises, and tax revenue first rises, then falls. b. rises as does tax revenue. c. falls, and tax revenue first rises, then falls. d. falls as does tax revenue.

a. rises, and tax revenue first rises, then falls.

Ronald Reagan believed that reducing income tax rates would a. do little, if anything, to encourage hard work. b. raise economic well-being and perhaps even tax revenue. c. result in large increases in deadweight losses. d. lower economic well-being, even though tax revenue could possibly increase.

b. raise economic well-being and perhaps even tax revenue.

To fully understand how taxes affect economic well-being, we must compare the a. consumer surplus to the producer surplus. b. reduced welfare of buyers and sellers to the revenue raised by the government. c. consumer surplus to the deadweight loss. d. price paid by buyers to the price received by sellers.

b. reduced welfare of buyers and sellers to the revenue raised by the government.

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the a. deadweight loss increases at first, but it eventually peaks and then decreases. b. tax revenue increases at first, but it eventually peaks and then decreases. c. tax revenue always increases, and the deadweight loss always increases. d. tax revenue always decreases, and the deadweight loss always increases.

b. tax revenue increases at first, but it eventually peaks and then decreases.

Supply-side economics is a term associated with the views of a. Milton Friedman. b. Karl Marx. c. Ronald Reagan and Arthur Laffer. d. Bill Clinton and Greg Mankiw.

c. Ronald Reagan and Arthur Laffer.

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent? a. United States b. Japan c. Sweden d. Canada

c. Sweden

An increase in the size of a tax is most likely to increase tax revenue in a market with a. elastic demand and inelastic supply. b. elastic demand and elastic supply. c. inelastic demand and inelastic supply. d. inelastic demand and elastic supply.

c. inelastic demand and inelastic supply.

Which of the following scenarios is consistent with the Laffer curve? a. The tax rate is 1 percent, and tax revenue is very high. b. The tax rate is 99 percent, and tax revenue is very high. c. The tax rate is moderate (between very high and very low), and tax revenue is very low. d. The tax rate is 1 percent, and tax revenue is very low.

d. The tax rate is 1 percent, and tax revenue is very low.

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that a. tax revenue increases, and the deadweight loss increases. b. tax revenue increases, and the deadweight loss decreases. c. tax revenue decreases, and the deadweight loss decreases. d. tax revenue decreases, and the deadweight loss increases.

d. tax revenue decreases, and the deadweight loss increases.