Question 1

Concerning the labor market and taxes on labor, economists disagree about

Accepted Answer

A)   the size of the tax on labor.
B)   the size of the deadweight loss of the tax on labor.
C)   whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 2

A tax placed on a good

Accepted Answer

A)   causes the effective price to sellers to increase.
B)   affects the welfare of buyers of the good but not the welfare of sellers.
C)   causes the equilibrium quantity of the good to decrease.
D)   creates a burden that is usually borne entirely by the sellers of the good.E) A) and D)
F) All of the above

Question 3

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $3,000.E) A) and D)
F) A) and C)

Question 4

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 5

If a tax shifts the supply curve downward (or to the right) , we can infer that the tax was levied on

Accepted Answer

A)   buyers of the good.
B)   sellers of the good.
C)   both buyers and sellers of the good.
D)   We cannot infer anything because the shift described is not consistent with a tax.E) None of the above
F) B) and D)

Question 6

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The tax is levied on

Accepted Answer

A)   buyers only.
B)   sellers only.
C)   both buyers and sellers.
D)   This is impossible to determine from the figure.E) B) and C)
F) A) and D)

Question 7

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. The amount of the tax on each unit of the good is

Accepted Answer

A)   $6.
B)   $8.
C)   $10.
D)   $12.E) A) and D)
F) B) and D)

Question 8

When a tax is levied on buyers of a good,

Accepted Answer

A)   government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
B)   there is an increase in the quantity of the good supplied.
C)   a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)   the effective price to buyers decreases because the demand curve shifts leftward.E) A) and B)
F) C) and D)

Question 9

Figure 8-27 
-Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Accepted Answer

The deadweight loss will be larger in Ma...

Question 10

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area

Accepted Answer

A)   M.
B)   L+M+N+Y+B.
C)   L+M+Y.
D)   J.E) All of the above
F) C) and D)

Question 11

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area

Accepted Answer

A)   K+L.
B)   I+Y.
C)   J+K+L+M.
D)   I+J+K+L+M+Y.E) A) and C)
F) None of the above

Question 12

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A)   Aristotle
B)   George Washington
C)   Oliver Wendell Holmes, Jr.
D)   Ronald ReaganE) A) and B)
F) None of the above

Question 13

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

Accepted Answer

A)   decrease by $5.
B)   decrease by $3.
C)   decrease by $2.
D)   increase by $5.E) A) and B)
F) A) and C)

Question 14

If the labor supply curve is nearly vertical, a tax on labor

Accepted Answer

A)   has a large deadweight loss.
B)   raises a small amount of tax revenue.
C)   has little impact on the amount of work that workers are willing to do.
D)   results in a large tax burden on the firms that hire labor.E) C) and D)
F) All of the above

Question 15

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Accepted Answer

A)   buyers of the good will bear most of the burden of the tax.
B)   sellers of the good will bear most of the burden of the tax.
C)   buyers and sellers will each bear 50 percent of the burden of the tax.
D)   both equilibrium price and quantity will increase.E) A) and D)
F) A) and C)

Question 16

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

Accepted Answer

A)   United States
B)   Canada
C)   Japan
D)   SwedenE) B) and C)
F) All of the above

Question 17

Which of the following quantities decrease in response to a tax on a good?

Accepted Answer

A)   the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
B)   the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
C)   the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
D)   None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.E) B) and C)
F) All of the above

Question 18

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

Accepted Answer

A) True 
 B)False

Question 19

The Laffer curve illustrates that

Accepted Answer

A)   deadweight loss rises by the square of the increase in a tax.
B)   deadweight loss rises exponentially as a tax increases.
C)   tax revenue first rises, then falls as a tax increases.
D)   Both a)  and b)  are correct.E) C) and D)
F) B) and D)

Question 20

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

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If a tax shifts the supply curve downward (or to the right) , we can infer that the tax was levied on

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Which of the following quantities decrease in response to a tax on a good?

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area

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Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

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Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

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When a tax is levied on buyers of a good,

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Concerning the labor market and taxes on labor, economists disagree about

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area

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When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

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Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

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Figure 8-27 -Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Correct AnswerverifiedThe deadweight loss will be larger in Ma...View AnswerShow Answer

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

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A tax placed on a good

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. The amount of the tax on each unit of the good is

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If the labor supply curve is nearly vertical, a tax on labor

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax is levied on

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Who once said that taxes are the price we pay for a civilized society?

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

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The Laffer curve illustrates that

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The deadweight loss will be larger in Ma...
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