Question 1

If the size of a tax increases, tax revenue

Accepted Answer

A)   increases.
B)   decreases.
C)   remains the same.
D)   may increase, decrease, or remain the same.E) None of the above
F) A) and B)

Question 2

When a tax is levied on the buyers of a good, the

Accepted Answer

A)   supply curve shifts upward by the amount of the tax.
B)   quantity supplied increases for all conceivable prices of the good.
C)   buyers of the good will send tax payments to the government.
D)   demand curve shifts to the right by the horizontal distance of the tax.E) B) and C)
F) A) and B)

Question 3

Figure 8-11 
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A)   consumer surplus decreases by $13.
B)   producer surplus decreases by $13.
C)   the deadweight loss amounts to $6.
D)   the amount of the good that is sold remains unchanged.E) A) and D)
F) B) and D)

Question 4

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The producer surplus with the tax is

Accepted Answer

A)   $3,000.
B)   $6,000.
C)   $9,000.
D)   $12,000.E) A) and B)
F) All of the above

Question 5

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Accepted Answer

A)   increase tax rates on individuals with high incomes, and leave tax rates on other individuals unchanged.
B)   equalize tax rates on all individuals, regardless of how much they earn.
C)   decrease tax rates on income and increase tax rates on consumption.
D)   increase the after-tax benefits to successful entrepreneurship and risk-taking.E) C) and D)
F) A) and B)

Question 6

Provide several examples of important taxes on labor in the United States. For a typical worker, what is the marginal tax rate on labor income once all the labor taxes are summed?

Accepted Answer

*the Social Security tax
*the ...

Question 7

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents

Accepted Answer

A)   consumer surplus after the tax.
B)   consumer surplus before the tax.
C)   producer surplus after the tax.
D)   producer surplus before the tax.E) A) and C)
F) A) and B)

Question 8

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Accepted Answer

A)   As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls.
B)   As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall.
C)   As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.
D)   As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.E) A) and B)
F) None of the above

Question 9

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Accepted Answer

A)   $25
B)   $20
C)   $5
D)   $0E) A) and C)
F) B) and D)

Question 10

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

Accepted Answer

A)   tax is placed on the sellers of the product.
B)   tax is placed on the buyers of the product.
C)   supply of the product is more elastic than the demand for the product.
D)   demand for the product is more elastic than the supply of the product.E) A) and C)
F) All of the above

Question 11

When a good is taxed,

Accepted Answer

A)   both buyers and sellers of the good are made worse off.
B)   only buyers are made worse off, because they ultimately bear the burden of the tax.
C)   only sellers are made worse off, because they ultimately bear the burden of the tax.
D)   neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.E) A) and B)
F) C) and D)

Question 12

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez wrote that, according to their analysis, the federal government's tax revenue would be maximized if the marginal income tax rate on individuals with the highest earnings were in or near the range of

Accepted Answer

A)   10 percent to 30 percent.
B)   30 percent to 50 percent.
C)   50 percent to 70 percent.
D)   70 percent to 90 percent.E) C) and D)
F) None of the above

Question 13

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadweight loss from this tax is 0.5...

Question 14

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 Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

Accepted Answer

A)   $80.
B)   $30.
C)   $20.
D)   $10.E) None of the above
F) A) and B)

Question 15

Figure 8-22 
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Accepted Answer

A)   Compared to the original tax, the larger tax will decrease tax revenue.
B)   Compared to the original tax, the smaller tax will decrease deadweight loss.
C)   Compared to the original tax, the smaller tax will decrease tax revenue.
D)   Compared to the original tax, the larger tax will increase deadweight loss.E) B) and D)
F) A) and B)

Question 16

Which of the following is a tax on labor?

Accepted Answer

A)   Medicare tax
B)   inheritance tax
C)   sales tax
D)   All of the above are labor taxes.E) A) and B)
F) A) and C)

Question 17

The less freedom young mothers have to work outside the home, the

Accepted Answer

A)   more elastic the supply of labor will be.
B)   less elastic the supply of labor will be.
C)   more horizontal the labor supply curve will be.
D)   larger is the decrease in employment that will result from a tax on labor.E) A) and C)
F) B) and C)

Question 18

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The per unit burden of the tax on buyers is

Accepted Answer

A)   P3 - P1.
B)   P3 - P2.
C)   P2 - P1.
D)   P4 - P3.E) A) and D)
F) All of the above

Question 19

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations: 
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:  How much tax revenue will be collected after this tax is imposed?

Accepted Answer

The tax re...

Question 20

Figure 8-11 
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then the deadweight loss of the tax is

Accepted Answer

A)   $6.
B)   $8.
C)   $9.
D)   $12.E) All of the above
F) A) and B)

Exam 8: Application: the Costs of Taxation

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez wrote that, according to their analysis, the federal government's tax revenue would be maximized if the marginal income tax rate on individuals with the highest earnings were in or near the range of

Correct AnswerverifiedShow Answer

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

Correct AnswerverifiedShow Answer

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 Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

Correct AnswerverifiedShow Answer

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Correct AnswerverifiedShow Answer

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Correct AnswerverifiedShow Answer

Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents

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When a good is taxed,

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The producer surplus with the tax is

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When a tax is levied on the buyers of a good, the

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Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is the deadweight loss from this tax?

Correct AnswerverifiedThe deadweight loss from this tax is 0.5...View AnswerShow Answer

The less freedom young mothers have to work outside the home, the

Correct AnswerverifiedShow Answer

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Correct AnswerverifiedShow Answer

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: How much tax revenue will be collected after this tax is imposed?

Correct AnswerverifiedThe tax re...View AnswerShow Answer

If the size of a tax increases, tax revenue

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Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The per unit burden of the tax on buyers is

Correct AnswerverifiedShow Answer

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then the deadweight loss of the tax is

Correct AnswerverifiedShow Answer

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Correct AnswerverifiedShow Answer

Which of the following is a tax on labor?

Correct AnswerverifiedShow Answer

Provide several examples of important taxes on labor in the United States. For a typical worker, what is the marginal tax rate on labor income once all the labor taxes are summed?

Correct Answerverified*the Social Security tax*the ...View AnswerShow Answer

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The deadweight loss from this tax is 0.5...
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The tax re...
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the Social Security tax
the ...
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