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Exam 8: Application: the Costs of Taxation

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Question 241

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When the government imposes taxes on buyers or sellers of a good, society

A) loses some of the benefits of market efficiency.
B) gains efficiency but loses equality.
C) is better off because the government's tax revenues exceed the deadweight loss.
D) moves from an elastic supply curve to an inelastic supply curve.

E) A) and D)
F) A) and B)

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Question 242

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A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

A) decreases consumer surplus by $645 per day.
B) decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
C) decreases total surplus from $3,000 to $1,800 per day.
D) creates a deadweight loss of $15 per day.

E) A) and B)
F) None of the above

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Question 243

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A tax on a good causes the size of the market to shrink.

A tax raises the price received by sellers and lowers the price paid by buyers.

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

Using demand and supply diagrams, show the difference in deadweight loss between a) a market with inelastic demand and supply and b) a market with elastic demand and supply.

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

The Laffer curve illustrates that

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

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: If T = 40, how much tax revenue will be collected from this tax?

According to Arthur Laffer, the graph that represents the amount of tax revenue measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

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: If T = 40, how much will be the deadweight loss from this tax?

Supply-side economics is a term associated with the views of

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

Figure 8-19 The vertical distance between points A and B represents the original tax. -Refer to Figure 8-19. If the government changed the per-unit tax from $5.00 to $7.50, then the price paid by buyers would be $10.50, the price received by sellers would be $3, and the quantity sold in the market would be 0.5 units. Compared to the original tax rate, this higher tax rate would

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