Question 1

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The size of the tax is

Accepted Answer

The answer of Figure 8-10 
-Refer to Figure 8-10.Suppose the...

Question 2

The size of a tax and the deadweight loss that results from the tax are

Accepted Answer

The size of a tax and the deadweight loss that results from the tax are positively related. As the tax rate increases, the deadweight loss increases because it is a measure of the inefficiency that results from the reduction in economic activity due to the tax. As the tax rate increases, it provides greater disincentives for producers and consumers to engage in economic activity, resulting in a larger deadweight loss.

Question 3

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the total surplus is

Accepted Answer

The total surplus without the tax is the sum of consumer surplus and producer surplus at the equilibrium quantity Q5, which is represented by the area of the triangle with height (P0-P5) and base Q5.

Question 4

Suppose a tax of 5 dollars per unit is imposed on a good.The supply curve is a typical upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.The tax decreases consumer surplus by 10,000 dollars and decreases producer surplus by 15,000 dollars.The deadweight loss of the tax is 2,500 pounds.The tax decreased the equilibrium quantity of the good from

Accepted Answer

When a tax is imposed on a good, the new supply curve shifts upwards by the amount of the tax ($5 in this case). The new equilibrium quantity will be lower than the original quantity due to the increase in price.

We know that the tax decreases consumer surplus by $10,000 and producer surplus by $15,000. The area of the rectangle formed by the original equilibrium quantity and price is the total surplus before the tax. After the tax, the area of the rectangle formed by the new equilibrium quantity and price will be the total surplus.

The decrease in consumer surplus plus the decrease in producer surplus plus the tax revenue equals the deadweight loss:

10,000 + 15,000 + (tax x new equilibrium quantity) = 2,500

Multiplying the tax by the new equilibrium quantity, we get:

5 x (original equilibrium quantity – new equilibrium quantity) x new equilibrium quantity = 2,500

Simplifying, we get:

5Q^2 – 25,000Q + 25,000 = 0

Using the quadratic formula, we get:

Q = 4,500 or Q = 5,500

Since the tax decreased the equilibrium quantity of the good, the answer must be one of the two options above. However, we are told that the tax decreased the equilibrium quantity from the original quantity to a new quantity. Therefore, the answer is B) 5,500 to 4,500.

Question 5

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The deadweight loss of the tax is

Accepted Answer

The deadweight loss of a tax is the loss of economic efficiency when the equilibrium quantity is reduced due to the tax. It is represented by the area of the triangle formed between the supply and demand curves from Q2 to Q5, which is calculated as $1 / 2$ x (P2-P8)x (Q5-Q2).

Question 6

The price elasticities of supply and demand affect

Accepted Answer

Both the price elasticities of supply and demand affect the size of the deadweight loss from a tax, as well as the tax incidence. When supply and demand are both relatively elastic, the deadweight loss from a tax is larger, and the burden of the tax is distributed more heavily on the side of the market that is less elastic. Conversely, when supply and demand are both relatively inelastic, the deadweight loss from a tax is smaller, and the burden of the tax is distributed more evenly between buyers and sellers.

Question 7

The deadweight loss from a 3 pound tax will be largest in a market with

Accepted Answer

Deadweight loss is largest when both supply and demand are elastic because the quantity traded decreases significantly, leading to a larger loss in total welfare.

Question 8

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Accepted Answer

When supply is relatively elastic and demand is relatively inelastic, the burden of the tax will fall mainly on the buyers of the good. This is because sellers will be able to pass on only a small portion of the tax to the buyers in the form of a price increase, due to the responsiveness of demand to changes in price. As a result, the equilibrium price of the good will increase by a lesser amount than the amount of the tax, leading to a decrease in the quantity demanded by buyers. Therefore, buyers will bear most of the burden of the tax.

Question 9

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the consumer surplus is

Accepted Answer

The consumer surplus after the tax is the area of the triangle formed by the price P0, the price P2, and the quantity Q2, which is calculated as $1 / 2$ x (P0-P2)x Q2.

Question 10

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The tax revenue is

Accepted Answer

The tax revenue is equal to the tax per unit sold multiplied by the quantity sold after the tax is imposed. Using the chart, we can see that the tax per unit is equal to the difference between the price paid by buyers (P2) and the price received by sellers after the tax is imposed (P8). Therefore, the tax per unit is P2 - P8. The quantity sold after the tax is imposed is Q2. Thus, the tax revenue is (P2-P8)x Q2, which is equal to choice B.

Question 11

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The price that sellers receive is

Accepted Answer

The answer of Figure 8-10 
-Refer to Figure 8-10.Suppose the...

Question 12

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Accepted Answer

The incidence of a tax on gasoline depends upon the price elasticities of demand and supply. If the demand for gasoline is relatively inelastic, then most of the tax burden will fall on the buyers (consumers). If the supply of gasoline is relatively inelastic, then most of the tax burden will fall on the sellers (producers). The amount of tax revenue raised by the tax depends on the tax per unit and the quantity of gasoline sold. Therefore, option C is incorrect. Option A is also incorrect because the incidence of the tax depends upon the price elasticities of demand and supply, not on who is required to remit tax payments to the government. Option D is incorrect because the amount of tax revenue raised by the tax depends on the amount of tax per unit.

Question 13

Labor taxes may distort labor markets greatly if

Accepted Answer

If the number of hours that many part-time workers want to work is very sensitive to the wage rate, then a high labor tax will increase the cost of labor for employers, leading them to hire fewer workers or offer fewer hours. This could further reduce employment opportunities, particularly for workers whose preferred working hours match those most affected by the tax. In contrast, if labor supply is highly inelastic or workers are less responsive to changes in wages, labor taxes might have less impact on overall employment levels. The other choices do not directly speak to the potential impact of labor taxes on labor market distortions.

Question 14

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the producer surplus is

Accepted Answer

With the tax, the producer surplus is 1/2 x (P8-0)x Q2. This is because the producer surplus is the area above the supply curve and below the price line, and the tax reduces the quantity sold, so the producer surplus is reduced.

Question 15

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the producer surplus is

Accepted Answer

The answer of Figure 8-10 
-Refer to Figure 8-10.Suppose the...

Question 16

The demand for potted plants is more elastic than the demand for wallpaper.Suppose the government levies an equivalent tax on potted plants and wallpaper.The deadweight loss would be larger in the market for

Accepted Answer

The answer of The demand for potted plants is more...

Question 17

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is

Accepted Answer

The total surplus with the tax is the sum of consumer surplus, producer surplus, and tax revenue, which is represented by the formula in choice B.

Question 18

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3.The amount of deadweight loss associated with the tax is equal to

Accepted Answer

Deadweight loss is the loss of consumer and producer surplus due to the distortions created by the tax. In Figure 8-3, the deadweight loss is represented by triangle ABC, which is the area between the supply and demand curves, and above the price with the tax. Thus, the correct answer is B.

Question 19

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the consumer surplus is

Accepted Answer

The answer of Figure 8-10 
-Refer to Figure 8-10.Suppose the...

Question 20

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The price that buyers pay is

Accepted Answer

After the tax, the new equilibrium is at point E2, where the quantity sold is Q2 and the price that buyers pay is P2.

Quiz 8: Application: The Costs of Taxation

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The size of the tax is

The size of a tax and the deadweight loss that results from the tax are

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the total surplus is

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The deadweight loss of the tax is

The price elasticities of supply and demand affect

The deadweight loss from a 3 pound tax will be largest in a market with

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the consumer surplus is

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The tax revenue is

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The price that sellers receive is

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Labor taxes may distort labor markets greatly if

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the producer surplus is

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the producer surplus is

The demand for potted plants is more elastic than the demand for wallpaper.Suppose the government levies an equivalent tax on potted plants and wallpaper.The deadweight loss would be larger in the market for

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3.The amount of deadweight loss associated with the tax is equal to

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.Without the tax,the consumer surplus is

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The price that buyers pay is