Question 1

The supply curve and the demand curve for a good are straight lines.When the good is taxed,the area on the relevant supply-and-demand graph that represents the deadweight loss is

Accepted Answer

When a good is taxed, a portion of the consumer surplus and producer surplus is lost. The deadweight loss is the inefficiency caused by the tax, and it is represented by the reduction in consumer and producer surplus. The deadweight loss area on the supply-and-demand graph is always a triangle, and it is located between the new post-tax quantity and the quantity that would have been exchanged in the absence of the tax. The deadweight loss area is not larger than the area of consumer surplus or government tax revenue. Therefore, the correct answer is C.

Question 2

Figure 8-2
 
-Refer to Figure 8-2.The price that buyers effectively pay after the tax is imposed is

Accepted Answer

The price that buyers effectively pay after the tax is imposed is P₃. This is because the tax is a per-unit tax, which means that the price of the good will increase by the amount of the tax. In this case, the tax is $1 per unit, so the price of the good will increase from P₂ to P₃.

Question 3

Figure 8-2
 
-Refer to Figure 8-2.The per unit burden of the tax on buyers is

Accepted Answer

The per unit burden of the tax on buyers is equal to the difference between the price paid by buyers before the tax (P₂) and the equilibrium price after the tax (P₃). Therefore, the correct answer is (P₃ - P₂).

Question 4

Taxes cause deadweight losses because

Accepted Answer

All three options are correct explanations for why taxes cause deadweight losses. A tax reduces the amount of trade that can occur between buyers and sellers, and that reduction results in a reduction in consumer and producer surplus, which can be larger than the amount of tax revenue collected. Additionally, taxes can cause some buyers and sellers to leave the market entirely, which reduces the quantity of goods or services sold overall. All of these factors contribute to deadweight losses associated with taxes.

Question 5

Figure 8-2
 
-Refer to Figure 8-2.The equilibrium price before the tax is imposed is

Accepted Answer

The equilibrium price before the tax is imposed is determined by the intersection of the supply and demand curves, which occurs at point E, corresponding to price P₂.

Question 6

The supply curve and the demand curve for widgets are straight lines.Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax.Then a tax of $5 per widget is imposed.The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3.The government is able to raise $750 per month in revenue from the tax.The deadweight loss from the tax is

Accepted Answer

The deadweight loss (DWL) is calculated using the formula: DWL = 0.5 * (change in quantity) * (tax per unit). The tax per unit is $5, and the change in quantity can be found from the tax revenue: $750 = $5 * new quantity, so new quantity = 150. The change in quantity is 200 - 150 = 50. Thus, DWL = 0.5 * 50 * 5 = $125.

Question 7

Deadweight loss is the

Accepted Answer

Deadweight loss refers to the loss of total surplus in a market that results from a tax. It is caused by the distortion of incentives and changes in behavior by buyers and sellers due to the tax, which leads to a reduction in economic efficiency and welfare. B, C, and D are incorrect because they do not describe the concept of deadweight loss accurately.

Question 8

The loss in total surplus resulting from a tax is called

Accepted Answer

Deadweight loss refers to the loss in total surplus resulting from a tax. It occurs when the reduction in consumer and producer surplus is greater than the revenue generated by the tax. It is an indication of inefficiency in the market. A and B are incorrect because they do not specifically refer to the loss in total surplus resulting from a tax. D is incorrect because it is too general and does not specifically refer to the loss resulting from a tax.

Question 9

The supply curve and the demand curve for a good are straight lines.When the good is taxed,the area on the relevant supply-and-demand graph that represents

Accepted Answer

A) When a good is taxed, the government collects tax revenue which is represented by a rectangle on the supply-and-demand graph. 
B) The deadweight loss of a tax is the reduction in consumer and producer surplus, which is represented by a triangle on the graph. 
C) The loss of consumer surplus caused by the tax is represented by the area between the original demand curve and the new demand curve after the tax has been imposed. This area is neither a rectangle nor a triangle. 
Therefore, all of the above choices are correct.

Question 10

Taxes

Accepted Answer

Taxes distort incentives by changing the relative prices of goods and services, leading to a shift in consumption, production, and investment decisions. This ultimately causes markets to allocate resources inefficiently because individuals and firms may not make choices that truly reflect their preferences and production costs. For example, a tax on carbon emissions will make fossil fuel-based energy sources relatively more expensive, which can reduce their use, but also causes consumers to shift to other renewable energy sources that may be less efficient or effective.

Question 11

Figure 8-2
 
-Refer to Figure 8-2.The amount of the tax on each unit of the good is

Accepted Answer

The tax is the vertical distance between the pre-tax and post-tax equilibrium prices, which is P₃ - P₁.

Question 12

Deadweight loss measures the

Accepted Answer

Deadweight loss is the loss of total surplus in the market due to market inefficiency. It occurs when the quantity of a good traded is below or above the socially optimal level. Deadweight loss can also occur due to government intervention, such as taxes, which can reduce the quantity of the good traded, leading to a reduction in the gains from trade for both buyers and sellers. The loss to buyers and sellers is not offset by an increase in government revenue, leading to a net loss to society. Therefore, option A is the correct answer.

Question 13

A deadweight loss is a consequence of a tax on a good because the tax

Accepted Answer

A deadweight loss is a loss of economic efficiency that occurs when the equilibrium quantity of a good is not produced or consumed due to a distortion in the market. A tax on a good typically leads to a decrease in demand and an increase in supply, resulting in a lower equilibrium quantity and higher equilibrium price. This reduction in the quantity traded causes a deadweight loss, as some mutually beneficial transactions are no longer occurring. Buyers consume less because of the higher price, and sellers produce less because of the extra cost of the tax, leading to a reduction in the overall welfare of society.

Question 14

The supply curve and the demand curve for cigars are straight lines.Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax.Then a tax of $0.50 per cigar is imposed.The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40.The government's tax revenue amounts to $475 per month.Which of the following statements is correct?

Accepted Answer

A) The tax incidence falls disproportionately on buyers since the effective price paid increased more than the effective price received. This implies that the demand for cigars is relatively more inelastic than the supply of cigars.
B) The decrease in consumer surplus is (1/2) x (1000-833) x (1.5-1.9) = -$390. 
The decrease in producer surplus is (1/2) x (1000-833) x (1.5-1.4) = -$97.5. 
Therefore, B is correct. 
C) The deadweight loss is the reduction in welfare due to the tax that is not captured as revenue by the government. It is the area of the triangle formed by the points where the new supply curve intersects the old demand curve and where the new demand curve intersects the old supply curve, minus the revenue collected ($475). 
The deadweight loss is (1/2) x (167) x (0.5) - 475 = -$12.5. Therefore, C is correct.

Thus, all of the statements are correct, and D is the final answer.

Question 15

The supply curve and the demand curve for cigars are straight lines.Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax.Then a tax of $0.50 per cigar is imposed.The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40.The government's tax revenue amounts to $475 per month.Which of the following statements is correct?

Accepted Answer

The answer of The supply curve and the demand curve...

Question 16

Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax.Then a tax of $5 per widget is imposed.As a result,the government is able to raise $750 per month in tax revenue.We can conclude that the equilibrium quantity of widgets has fallen by

Accepted Answer

The tax revenue is $750, which means 150 widgets are sold after the tax ($750/$5). The original equilibrium quantity was 200, so the quantity has fallen by 50 (200 - 150).

Question 17

A tax of $10 per unit is imposed on a certain good.The supply curve and the demand curve are straight lines.The tax reduces the equilibrium quantity in the market by 200 units.The deadweight loss from the tax is

Accepted Answer

The answer of A tax of $10 per unit is...

Question 18

Figure 8-2
 
-Refer to Figure 8-2.The amount of tax revenue received by the government is equal to the area

Accepted Answer

The tax revenue received by the government is equal to the area between the supply curve and the demand curve, from the quantity where the tax is imposed (Q₂) to the quantity where the demand curve intersects the y-axis (Q₃). This area is represented by the triangle P₃ A C and the rectangle P₁ C A P₃. Therefore, the correct answer is A) P₃ A C P₁.

Question 19

Figure 8-2
 
-Refer to Figure 8-2.The per-unit burden of the tax on sellers is

Accepted Answer

The answer of Figure 8-2
 
-Refer to Figure 8-2.The per-unit...

Question 20

Figure 8-2
 
-Refer to Figure 8-2.The price that sellers effectively receive after the tax is imposed is

Accepted Answer

The price that sellers effectively receive after the tax is imposed is P₁, because the tax is a per-unit tax, and the sellers will reduce their price by the amount of the tax in order to maintain their profit margin.

Quiz 8: Application: the Costs of Taxation

The supply curve and the demand curve for a good are straight lines.When the good is taxed,the area on the relevant supply-and-demand graph that represents the deadweight loss is

Figure 8-2 -Refer to Figure 8-2.The price that buyers effectively pay after the tax is imposed is

Figure 8-2 -Refer to Figure 8-2.The per unit burden of the tax on buyers is

Taxes cause deadweight losses because

Figure 8-2 -Refer to Figure 8-2.The equilibrium price before the tax is imposed is

Deadweight loss is the

The loss in total surplus resulting from a tax is called

The supply curve and the demand curve for a good are straight lines.When the good is taxed,the area on the relevant supply-and-demand graph that represents

Taxes

Figure 8-2 -Refer to Figure 8-2.The amount of the tax on each unit of the good is

Deadweight loss measures the

A deadweight loss is a consequence of a tax on a good because the tax

Suppose the equilibrium quantity in the market for widgets is 200 per month when there is no tax.Then a tax of $5 per widget is imposed.As a result,the government is able to raise $750 per month in tax revenue.We can conclude that the equilibrium quantity of widgets has fallen by

A tax of $10 per unit is imposed on a certain good.The supply curve and the demand curve are straight lines.The tax reduces the equilibrium quantity in the market by 200 units.The deadweight loss from the tax is

Figure 8-2 -Refer to Figure 8-2.The amount of tax revenue received by the government is equal to the area

Figure 8-2 -Refer to Figure 8-2.The per-unit burden of the tax on sellers is

Figure 8-2 -Refer to Figure 8-2.The price that sellers effectively receive after the tax is imposed is