Deck 8: True False

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

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.

Question 20

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

Question 21

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

Question 22

Taxes create deadweight losses.

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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

Question 38

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

Question 39

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

Question 40

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

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

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 43

The Social Security tax is a labor tax.

Question 44

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

Question 45

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 46

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

Question 47

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

Question 48

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 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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 54

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 55

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 56

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

Question 57

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

Question 58

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 59

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