Chapter 8 Practice Questions

Deadweight loss measures the loss a.) in a market to buyers and sellers that is not offset by an increase in government revenue. b.) in revenue to the government when buyers choose to buy less of the product because of the tax. c.) of equality in a market due to government intervention. d.) of total revenue to business firms due to the price wedge caused by the tax.

a.) in a market to buyers and sellers that is not offset by an increase in government revenue.

The Laffer curve relates a.) the tax rate to tax revenue raised by the tax. b.) the tax rate to the deadweight loss of the tax. c.) the price elasticity of supply to the deadweight loss of the tax. d.) government welfare payments to the birth rate.

a.) the tax rate to tax revenue raised by the tax.

A tax on a good a.) gives buyers an incentive to buy more of the good than they otherwise would buy. b.) gives sellers an incentive to produce less of the good than they otherwise would produce. c.) creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. d.) All of the above are correct.

b.) gives sellers an incentive to produce less of the good than they otherwise would produce.

A tax on a good a.) raises the price that buyers effectively pay and raises the price that sellers effectively receive. b.) raises the price that buyers effectively pay and lowers the price that sellers effectively receive. c.) lowers the price that buyers effectively pay and raises the price that sellers effectively receive. d.) lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.

b.) raises the price that buyers effectively pay and lowers the price that sellers effectively receive.

What happens to the total surplus in a market when the government imposes a tax? a.) Total surplus increases by the amount of the tax. b.) Total surplus increases but by less than the amount of the tax. c.) Total surplus decreases. d.) Total surplus is unaffected by the tax.

c.) Total surplus decreases.

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

c.) deadweight loss.

A tax levied on the buyers of a good shifts the a.) supply curve upward (or to the left). b.) supply curve downward (or to the right). c.) demand curve downward (or to the left). d.) demand curve upward (or to the right).

c.) demand curve downward (or to the left).

Taxes cause deadweight losses because taxes a.) reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b.) prevent buyers and sellers from realizing some of the gains from trade. c.) cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. d.) All of the above are correct.

d.) All of the above are correct.

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

d.) regardless of how the tax is levied.