Econ 8

Which of the following would likely cause the greatest deadweight loss?

a tax on cruise line tickets

Which of the following is true with regard to a tax on labour income? Taxes on labour income tend to encourage

all the above

Deadweight loss is greatest when

both supply and demand are relatively elastic.

A larger tax always generates more tax revenue.

false

A tax on cigarettes would likely generate a larger deadweight loss than a tax on luxury boats.

false

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a

Laffer curve

Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would generate

a small deadweight loss and the burden of the tax would fall on the landlord.

A tax on petrol is likely to

cause a greater deadweight loss in the long run when compared to the short run.

When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise, the tax has

caused a deadweight loss.

The reduction of a tax

could increase tax revenue if the tax had been extremely high

A tax collected from buyers generates a smaller deadweight loss than a tax collected from sellers.

false

If John values having his hair cut at €20 and Mary's cost of providing the hair cut is €10, any tax on hair cuts larger than €10 will eliminate the gains from trade and cause a €20 loss of total surplus.

false

When a tax is placed on a good, the revenue the government collects is exactly equal to the loss of consumer and producer surplus from the tax.

false

A tax will generate a greater deadweight loss if supply and demand are inelastic.

false (elastic)

Deadweight loss is the reduction in consumer surplus that results from a tax.

false (the fall in total surplus from market distortions)

If a tax on a good is doubled, the deadweight loss from the tax

increases by a factor of four

A larger tax always generates a larger deadweight loss.

true

A tax causes a deadweight loss because it eliminates some of the potential gains from trade.

true

If a tax is doubled, the deadweight loss from the tax more than doubles.

true

If a tax is placed on a good and it reduces the quantity sold, there must be a deadweight loss from the tax.

true

If a tax is placed on a good in a market where supply is perfectly inelastic, there is no deadweight loss and the sellers bear the entire burden of the tax.

true

If an income tax rate is high enough, a reduction in the tax rate could increase tax revenue.

true

In general, a tax raises the price the buyers pay, lowers the price the sellers receive, and reduces the quantity sold.

true

A deadweight loss results when a tax causes market participants to fail to produce and consume units on which the benefits to the buyers exceeded the costs to the sellers.

ture

When a tax on a good starts small and is gradually increased, tax revenue

will first rise and then fall