Chap 8 quiz

Sofia pays Sam $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Sam, he raises his price to $60. Sofia continues to hire him at the higher price. What is the change in producer sur- plus, change in consumer surplus, and deadweight loss?

$0, -$10, $0

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

$1.50.

Refer to Figure 8-6. The amount of the tax on each unit of the good is

$10.

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

$2,500.

Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

$3,000.

Refer to Figure 8-9. The per-unit burden of the tax on sellers is

$300.

Which of the following tools help us evaluate how taxes affect economic well-being? (i)consumer surplus (ii)producer surplus (iii)tax revenue (iv)deadweight loss

(i), (ii), (iii), and (iv)

Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear one-half of the tax burden.

Which of the following is a tax on labor?

Medicare tax

Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

P1P2BC.

Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

P3.

If a tax shifts the demand curve upward (or to the right), we can infer that the tax was levied on

We cannot infer anything because the shift described is not consistent with a tax.

When a tax is levied on buyers of a good,

a wedge is placed between the price buyers pay and the price sellers effectively receive.

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to

decrease and the quantity of gasoline supplied to decrease.

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left).

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the

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

A tax on a good

gives buyers an incentive to buy less of the good than they otherwise would buy.

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

government's benefit from the tax.

The Laffer curve illustrates that, in some circum- stances, the government can reduce a tax on a good and increase the

government's tax revenue.

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

height of the triangle that represents the deadweight loss doubles.

Deadweight loss measures the loss

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

If the tax on a good is tripled, the deadweight loss of the tax

increases by a factor of 9.

Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the govern- ment's tax revenue

increases by less than 50 percent and may even decline.

Eggs have a supply curve that is linear and upward-sloping and a demand curve that is linear and downward-sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the tax

increases by more than 50 percent.

Refer to Figure 8-11. The price labeled as P3 on the vertical axis represents the price

paid by buyers after the tax is imposed.

Ronald Reagan believed that reducing income tax rates would

raise economic well-being and perhaps even tax revenue.

If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ________ elasticities of demand and ________ elasticities of supply.

small, small

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

supply-side economics.

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

the deadweight loss of the tax necessarily decreases.

A tax on a good has a deadweight loss if

the reduction in consumer and producer surplus is greater than the tax revenue.