Deck 8: Applications: The Costs of Taxation

Question 1

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases.

Answer 3

False

Question 4

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

Question 5

When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases.

Question 6

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Question 7

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

Question 8

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

Question 9

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

Question 10

Taxes affect market participants by increasing the price paid by the buyer and received by the seller.

Question 11

Total surplus is always equal to the sum of consumer surplus and producer surplus.

Question 12

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

Question 13

When a tax is imposed, the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.

Question 14

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

Question 15

Economists use the government's tax revenue to measure the public benefit from a tax.

Question 16

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Question 17

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Question 18

A tax places a wedge between the price buyers pay and the price sellers receive.

Question 19

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

Question 20

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

Question 21

Taxes create deadweight losses.

Question 22

The larger the deadweight loss from taxation, the larger the cost of government programs.

Question 23

Economists disagree on whether labor taxes have a small or large deadweight loss.

Question 24

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

Question 25

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

Question 26

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Question 27

Taxes on labor tend to encourage the elderly to retire early.

Question 28

The more inelastic are demand and supply, the greater is the deadweight loss of a tax.

Question 29

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

Question 30

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Question 31

If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss.

Question 32

The most important tax in the U.S. economy is the tax on corporations' profits.

Question 33

Taxes on labor tend to increase the number of hours that people choose to work.

Question 34

A tax on insulin is likely to cause a very large deadweight loss to society.

Question 35

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Question 36

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Question 37

When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

Question 38

Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

Question 39

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.

Question 40

When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.

Question 41

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Question 42

As the size of a tax increases, the government's tax revenue rises, then falls.

Question 43

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

Question 44

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Question 45

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Question 46

The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.

Question 47

Tax revenues increase in direct proportion to increases in the size of the tax.

Question 48

The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.

Question 49

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

Question 50

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

Question 51

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Question 52

The Social Security tax is a labor tax.

Question 53

Suppose that a university charges students a $100 "tax" to register for business classes. The next year the university raises the "tax" to $150. The deadweight loss from the "tax" triples.

Question 54

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Question 55

If the size of a tax triples, the deadweight loss increases by a factor of six.

Question 56

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Question 57

If the size of a tax doubles, the deadweight loss doubles.

Question 58

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Question 59

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Question 60

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Question 61

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Question 62

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Question 63

Scenario 8-3
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Suppose the market demand and market supply curves are given by the equations:
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Q^D = 200 - P
Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
Q^D = 200 - (P + T)
If T = 40, what price will buyers pay and what price will sellers receive?

Question 64

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Question 65

Figure 8-9
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Refer to Figure 8-9. What are the equilibrium price and equilibrium quantity in this market?

Question 66

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. What price will sellers receive for the good after the tax is imposed?

Question 67

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

Question 68

Scenario 8-3
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Suppose the market demand and market supply curves are given by the equations:
​
Q^D = 200 - P
Refer to Scenario 8-3. What are the equilibrium price and equilibrium quantity in this market?

Question 69

Scenario 8-3
​
Suppose the market demand and market supply curves are given by the equations:
​
Q^D = 200 - P
Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
Q^D = 200 - (P + T)
How much tax revenue will be collected after this tax is imposed?

Question 70

Figure 8-9
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Refer to Figure 8-9. Suppose the government increases the size of the tax on this good from $4 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Question 71

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Question 72

Figure 8-9
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Refer to Figure 8-9. How much is consumer surplus at the market equilibrium?

Question 73

A tax is imposed on a certain good. The tax produces revenue of $5,000 for the government. The tax reduces consumer surplus by $3,000 and it reduces producer surplus by $4,000. What is the amount of the deadweight loss of the tax?

Question 74

Scenario 8-3
​
Suppose the market demand and market supply curves are given by the equations:
​
Q^D = 200 - P
Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
Q^D = 200 - (P + T)
What will be the deadweight loss from this tax?

Question 75

Figure 8-9
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Refer to Figure 8-9. How much is total surplus at the market equilibrium?

Question 76

Scenario 8-3
​
Suppose the market demand and market supply curves are given by the equations:
​
Q^D = 200 - P
Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
Q^D = 200 - (P + T)
What quantity will be bought and sold after the tax is imposed?

Question 77

Figure 8-9
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Refer to Figure 8-9. How much is producer surplus at the market equilibrium?

Question 78

Scenario 8-3
​
Suppose the market demand and market supply curves are given by the equations:
​
Q^D = 200 - P
Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
Q^D = 200 - (P + T)
What price will sellers receive and what price will buyers pay after the tax is imposed?

Question 79

Figure 8-9
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​
Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. What price will consumers pay for the good after the tax is imposed?

Question 80

Figure 8-9
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Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is producer surplus after the tax is imposed?