Micro Chapter 7 - Taxes

d) A; buyers

(Figure: Tax Incidence) Use Figure: Tax Incidence. All other things unchanged, when a good or service is characterized by a relatively elastic supply, as shown in panel _____, a greater share of the burden of an excise tax is borne by _____. a) A; sellers b) B; sellers c) B; buyers d) A; buyers

b) C; D

(Figure: Tax Incidence) Use Figure: Tax Incidence. Based on the figure, the deadweight loss of an excise tax is likely to be greater in panel _____ than in panel _____. a) B; A b) C; D c) C; A d) D; A

c) $26,250.

(Figure: The Gasoline Market) Use Figure: The Gasoline Market. The pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An excise tax has been levied on each gallon of gasoline supplied by producers, shifting the supply curve upward. The total tax revenue collected by the government is equal to: a) $30,000. b) $15,000. c) $26,250. d) $1.50.

b) $4,375.

(Figure: The Gasoline Market) Use Figure: The Gasoline Market. The pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An excise tax has been levied on each gallon of gasoline, shifting the supply curve upward. The deadweight loss from this tax is equal to: a) $1.50. b) $4,375. c) $15,000. d) $5,000.

c) $105.

(Figure: The Market for Hamburgers) Use Figure: The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per hamburger, producer surplus will be reduced by: a) $90. b) $240. c) $105. d) $175.

c) $175.

(Figure: The Market for Hamburgers) Use Figure: The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, consumer surplus will be reduced by: a) $105. b) $90. c) $175. d) $240.

d) $40.

(Figure: The Market for Hamburgers) Use Figure: The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, the deadweight loss associated with the tax will be: a) $105. b) $90. c) $240. d) $40.

c) $240.

(Figure: The Market for Hamburgers) Use Figure: The Market for Hamburgers. If the market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit of the good sold, the government's revenue from the tax will be: a) $105. b) $90. c) $240. d) $175.

d) $0.50; 5

(Figure: The Market for Productivity Apps) Use Figure: The Market for Productivity Apps. If the government imposes a tax of $1 in this market, consumers will pay _____ more per app and purchase _____ fewer apps. a) $1; 25 b) $0.50; 20 c) $1; 5 d) $0.50; 5

a) $5; $2,500

(Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government wants to limit shrimp sales to 500 pounds, it can impose a _____ excise tax on sellers, and the total tax revenue generated will be _____. a) $5; $2,500 b) $10; $2,500 c) $7.50; $7,500 d) The answer cannot be determined from the information provided.

b) low; low

A higher tax rate is more likely to increase tax revenue if the price elasticity of demand is _____ and the price elasticity of supply is _____. a) low; high b) low; low c) high; high d) high; low

a) the ability-to-pay principle.

A lump-sum tax, such as the fee for a driver's license, does not take into consideration: a) the ability-to-pay principle. b) the benefits principle. c) efficiency. d) the tax base.

c) shifts the supply curve upward.

An excise tax that the government collects from the producers of a good: a) shifts the supply curve downward. b) reduces revenue for the government. c) shifts the supply curve upward. d) has an effect similar to that of a tax subsidy.

b) regressive.

Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that this tax is: a) proportional. b) regressive. c) progressive. d) equitable.

a) then efficiency can be improved only by making the system less fair.

If a tax system is well designed: a) then efficiency can be improved only by making the system less fair. b) it maximizes efficiency and equity. c) it maximizes efficiency. d) it maximizes fairness.

b) demand; downward

If an excise tax is imposed on wine and collected from the consumers, the _____ curve will shift _____ by the amount of the tax. a) demand; upward b) demand; downward c) supply; upward d) supply; downward

a) producers are paying more of the tax than are the consumers.

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2: a) producers are paying more of the tax than are the consumers. b) the quantity of shoes sold will increase. c) consumers are paying more of the tax than the producers. d) the government will receive less tax revenue than anticipated.

b) consumers; zero

If the government levies an excise tax in a market whose demand curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____. a) producers; the tax revenue b) consumers; zero c) producers; zero d) consumers; the tax revenue

d) price elasticity of demand is low.

If the government wants to minimize the deadweight loss from taxes, it should tax goods for which the: a) price elasticity of demand is high. b) price elasticity of supply is high. c) demand is high. d) price elasticity of demand is low.

b) $0.75; $0.25

Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers. a) $0.50; $0.50 b) $0.75; $0.25 c) $0; $1.00 d) $0.25; $0.75

c) regressive.

Sales taxes are considered to be: a) progressive. b) an unfair burden on wealthy people, who spend more money on goods subject to sales tax. c) regressive. d) the most important source of revenue for the federal government.

c) it discourages drinking alcohol while raising revenue for the government.

State governments levy excise taxes on alcohol because: a) they want to subsidize alcohol production. b) it is politically popular with religious groups. c) it discourages drinking alcohol while raising revenue for the government. d) they want to encourage individuals to produce their own alcohol.

b) tax efficiency.

Suppose Congress passed a new tax system, such that all federal, state, and local taxes were replaced with one tax: a tax of $14,000 for every person 18 and over. This new tax system would clearly improve: a) tax fairness. b) tax efficiency. c) tax equity. d) government revenue.

c) Yacht builders will pay more.

Suppose the absolute value of the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax? a) It's impossible to tell without additional information. b) Yacht buyers will pay more. c) Yacht builders will pay more. d) Yacht builders and buyers will pay equally.

d) the price of sweaters will increase by less than $10.

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping: a) the price of sweaters will decrease by $10. b) consumers of sweaters will bear the entire burden of the tax. c) the price of sweaters will increase by $10. d) the price of sweaters will increase by less than $10.

a) the number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

The deadweight loss from an excise tax comes about because: a) the number of transactions in the market is reduced and some mutually beneficial transactions do not take place. b) some mutually beneficial transactions do not take place. c) a quota rent exists. d) the number of transactions in the market is smaller than the no-tax equilibrium.

d) progressive.

The evidence suggests that federal taxes in the U.S. economy are: a) regressive. b) higher than they've ever been before. c) proportional. d) progressive.

b) refers to how much of the tax is actually paid by consumers and producers.

The incidence of a tax: a) is a measure of the revenue the government receives from it. b) refers to how much of the tax is actually paid by consumers and producers. c) refers to who writes the check to the government. d) is a measure of the deadweight loss from the tax.

b) the benefits principle and the ability-to-pay principle.

The two principles of tax fairness are: a) the equity principle and the efficiency principle. b) the benefits principle and the ability-to-pay principle. c) the minimize-distortions principle and the maximize-revenue principle. d) the proportional-tax principle and the ability-to-pay principle.

a) consumer surplus falls, producer surplus falls, and a deadweight loss occurs.

When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve: a) consumer surplus falls, producer surplus falls, and a deadweight loss occurs. b) a deadweight loss occurs. c) consumer surplus falls. d) producer surplus falls.