Question 1

Labour taxes encourage workers to work fewer hours, second earners to stay at home, the elderly to retire early, and the unscrupulous to engage in illegal activities.

Accepted Answer

A) True 
 B)False

Question 2

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Accepted Answer

A) True 
 B)False

Question 3

Illustrate on three demand-supply graphs how the size of a tax (small, medium and large) can alter total revenue and deadweight loss.

Accepted Answer

The answer of Illustrate on three demand-supply graphs how the...

Question 4

According to the information provided, the total gain in welfare due to the transaction described here is:

Accepted Answer

A)   $15 per week
B)   $65 per week
C)   $50 per week
D)   $45 per weekE) B) and C)
F) C) and D)

Question 5

The amount of deadweight loss from taxes depends on:

Accepted Answer

A)   the price elasticity of demand and supply
B)   how much of the tax revenue the government plans to spend
C)   the product the government is planning to tax
D)   all of the above are correctE) A) and D)
F) None of the above A

Question 6

Graph 8-2
 
-According to Graph 8-2, producer surplus before the tax equals:

Accepted Answer

A)   $750
B)   $3000
C)   $1125
D)   $1500E) C) and D)
F) B) and D)

Question 7

Assume that a tax is levied on a good and the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people. In this case there would be:

Accepted Answer

A)   a decrease in consumer surplus to consumers of the taxed good
B)   a decrease in producer surplus to producers of the taxed good
C)   a probable increase in the total economic welfare of society
D)   all of the above would occurE) A) and D)
F) A) and C)

Question 8

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + P
Qd = 500- 4P
From this information, compute the equilibrium price (P) and quantity (Q).
Now suppose that a tax (T) is placed on sellers so that
Qs = 100 + (P -T).
If T = 20, solve for the new equilibrium price and quantity. (Note: P-T is the price received by sellers and P is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Before the tax, the market equilibrium price is $80 and the market equilibrium is 180 units.
After the tax, the market equilibrium quantity is 164.
The price paid by buyers will be $84.
The price received by sellers will be $64.
This shows that buyers pay more with a tax, sellers pay less with a tax, and the market is smaller as a result.

Question 9

When a tax is imposed on a market, the government collects revenues. These revenues however, are less than the loss in consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False

Question 10

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 11

A major political problem with collecting taxes to finance government spending is that:

Accepted Answer

A)   taxes make taxpayers worse off since government spending benefits no one
B)   taxes make taxpayers worse off since government spending benefits only those on welfare
C)   the people who pay the taxes are often not the same people who benefit from the government spending of tax funds
D)   taxes reduce economic welfare more than the expenditure of tax funds benefits societyE) A) and C)
F) B) and C)

Question 12

'Assume that the demand for entertainment is more elastic than the demand for petrol'.
According to this statement, the tax levied on entertainment will cause the loss of consumer surplus to be:

Accepted Answer

A)   zero
B)   relatively large
C)   relatively small
D)   either small or large (depending on the elasticity of supply) E) A) and B)
F) B) and D) B

Question 13

Suppose supply is perfectly inelastic, while demand is relatively elastic. A tax of $1.00 is levied on the purchasers of the good. Which of the following statements is correct?

Accepted Answer

A)   the government will fail to raise any tax revenue
B)   there will be a positive deadweight loss
C)   there will be no deadweight loss
D)   government revenue will be less than the deadweight loss of the tax.E) None of the above
F) All of the above

Question 14

Graph 8-1
 
-According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Accepted Answer

A)   A + B + C
B)   C + E
C)   D + E + F
D)   A + B + D + FE) None of the above
F) All of the above

Question 15

Graph 8-1
 
-According to Graph 8-1, the tax caused a reduction in producer surplus, it is represented by area:

Accepted Answer

A)   A
B)   B + C
C)   D + E
D)   FE) B) and D)
F) B) and C)

Question 16

The deadweight loss of taxation may be less than supply and demand analysis suggests as some economic activity may be forced "under the table" where it is not counted in official figures.

Accepted Answer

A) True 
 B)False

Question 17

Graph 8-2
 
-According to Graph 8-2, the price sellers receive after the tax is:

Accepted Answer

A)   $5
B)   $10
C)   $15
D)   $20E) B) and C)
F) A) and B)

Question 18

If demand is more inelastic than supply, levying a tax on demand will minimise the deadweight loss.

Accepted Answer

A) True 
 B)False

Question 19

Graph 8-2
 
-According to Graph 8-2, after the tax is levied, producer surplus is:

Accepted Answer

A)   $375
B)   $750
C)   $1500
D)   $1125E) None of the above
F) All of the above

Question 20

The Laffer curve:

Accepted Answer

A)   relates income tax rates to total income taxes collected
B)   was so ridiculous that economists took it as a joke, hence the name, Laffer Curve
C)   relates tax rates to deadweight welfare losses
D)   relates government welfare payments to the birth rateE) A) and C)
F) A) and B)

Exam 8: Application: the Costs of Taxation

Labour taxes encourage workers to work fewer hours, second earners to stay at home, the elderly to retire early, and the unscrupulous to engage in illegal activities.

Correct Answer
verified

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Correct Answer
verified

Illustrate on three demand-supply graphs how the size of a tax (small, medium and large) can alter total revenue and deadweight loss.

Correct Answer
verified

According to the information provided, the total gain in welfare due to the transaction described here is:

Correct Answer
verified

The amount of deadweight loss from taxes depends on:

Correct Answer
verified
A

Graph 8-2 -According to Graph 8-2, producer surplus before the tax equals:

Correct Answer
verified

Assume that a tax is levied on a good and the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people. In this case there would be:

Correct Answer
verified

When a tax is imposed on a market, the government collects revenues. These revenues however, are less than the loss in consumer surplus and producer surplus.

Correct Answer
verified

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Correct Answer
verified

A major political problem with collecting taxes to finance government spending is that:

Correct Answer
verified

'Assume that the demand for entertainment is more elastic than the demand for petrol'. According to this statement, the tax levied on entertainment will cause the loss of consumer surplus to be:

Correct Answer
verified
B

Suppose supply is perfectly inelastic, while demand is relatively elastic. A tax of $1.00 is levied on the purchasers of the good. Which of the following statements is correct?

Correct Answer
verified

Graph 8-1 -According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Correct Answer
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Graph 8-1 -According to Graph 8-1, the tax caused a reduction in producer surplus, it is represented by area:

Correct Answer
verified

The deadweight loss of taxation may be less than supply and demand analysis suggests as some economic activity may be forced "under the table" where it is not counted in official figures.

Correct Answer
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Graph 8-2 -According to Graph 8-2, the price sellers receive after the tax is:

Correct Answer
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If demand is more inelastic than supply, levying a tax on demand will minimise the deadweight loss.

Correct Answer
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Graph 8-2 -According to Graph 8-2, after the tax is levied, producer surplus is:

Correct Answer
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The Laffer curve:

Correct Answer
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Exam 8: Application: the Costs of Taxation

Labour taxes encourage workers to work fewer hours, second earners to stay at home, the elderly to retire early, and the unscrupulous to engage in illegal activities.

Correct AnswerverifiedShow Answer

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Correct AnswerverifiedShow Answer

Illustrate on three demand-supply graphs how the size of a tax (small, medium and large) can alter total revenue and deadweight loss.

Correct AnswerverifiedShow Answer

According to the information provided, the total gain in welfare due to the transaction described here is:

Correct AnswerverifiedShow Answer

The amount of deadweight loss from taxes depends on:

Correct AnswerverifiedA

Graph 8-2 -According to Graph 8-2, producer surplus before the tax equals:

Correct AnswerverifiedShow Answer

Assume that a tax is levied on a good and the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people. In this case there would be:

Correct AnswerverifiedShow Answer

When a tax is imposed on a market, the government collects revenues. These revenues however, are less than the loss in consumer surplus and producer surplus.

Correct AnswerverifiedShow Answer

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Correct AnswerverifiedShow Answer

A major political problem with collecting taxes to finance government spending is that:

Correct AnswerverifiedShow Answer

'Assume that the demand for entertainment is more elastic than the demand for petrol'. According to this statement, the tax levied on entertainment will cause the loss of consumer surplus to be:

Correct AnswerverifiedB

Suppose supply is perfectly inelastic, while demand is relatively elastic. A tax of $1.00 is levied on the purchasers of the good. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Graph 8-1 -According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Correct AnswerverifiedShow Answer

Graph 8-1 -According to Graph 8-1, the tax caused a reduction in producer surplus, it is represented by area:

Correct AnswerverifiedShow Answer

The deadweight loss of taxation may be less than supply and demand analysis suggests as some economic activity may be forced "under the table" where it is not counted in official figures.

Correct AnswerverifiedShow Answer

Graph 8-2 -According to Graph 8-2, the price sellers receive after the tax is:

Correct AnswerverifiedShow Answer

If demand is more inelastic than supply, levying a tax on demand will minimise the deadweight loss.

Correct AnswerverifiedShow Answer

Graph 8-2 -According to Graph 8-2, after the tax is levied, producer surplus is:

Correct AnswerverifiedShow Answer

The Laffer curve:

Correct AnswerverifiedShow Answer

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A

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B

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