Problem set 6 and 7

As deadweight loss increases, the amount of tax revenue from the imposition of a tax

Decrease

As the size of a tax increases, deadweight loss

Increase

The United States uses a system of quotas to limit the amount of sugar imported into the country. Which of the following statements is most likely true?

The quotas are probably the result of lobbying from U.S. producers of sugar since the quotas increase producer surplus and reduce consumer surplus.

Which of the following scenarios is not consistent with the Laffer curve?

The tax rate is very high, and tax revenue is very high.

Supporters of trade restrictions often cite unfair-competition as a reason for increasing trade restrictions. An economist would argue that

domestic consumers are better off because of the lower price

An increase in the size of a tax is least likely to increase tax revenue in a market with

elastic demand and elastic supply

A tax on a good

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

When a country's tax rate is above the revenue maximizing point of the Laffer curves, a decrease in the tax rate will

increase tax revenue and decrease the deadweight loss.

Government policymakers have the appropriate knowledge and incentive to choose which industries deserve temporary trade protection. This observation helps to explain why many economists are skeptical about the

infant-industry argument.

Taxes cause deadweight losses because they

prevent buyers and sellers from realizing some of the gains from trade

When a tax is placed on a product, the price paid by buyers

rises, and the price received by sellers falls

When a tax is levied on a buyer of a good,

the buyer pays more of the tax if the demand curve is more inelastic than the supply curve.

If a country allows trade and the domestic price without trade is higher than the world price

the country will be an importer of the good.

Congressman Smith argues that everything can be produced at lower cost in other countries so tariffs should be used to protect domestic jobs. The likely flaw in Congressman Smith's reasoning is that

the gains from trade are based on comparative advantage.