ECO2023 Chapter 8, Quiz 7

SCENARIO 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. REFER TO SCENARIO 8-1 If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

$20

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is

$600

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

$625

SCENARIO 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. REFER TO SCENARIO 8-1 Assume Erin is required to pay a tax of $5 when she hires someone to clean her house. Which of the following is true?

Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.

Which of the following scenarios is consistent with the Laffer curve?

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

When a tax is levied on a good,

a.)government collects revenues which might justify the loss in total welfare. b.)there is a decrease in the quantity of the goods bought and sold in the market. c.)a wedge is placed between the price buyers pay and the price sellers effectively receive.

When a tax is levied on a good

both buyers and sellers are made worse off.

It does not matter whether a tax is levied on the buyers or the sellers of a good because

buyers and sellers will share the burden of the tax

To fully understand how taxes affect economic well-being, we must

compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

eighth year after it is imposed than in the fist year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.