Question 1

In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?

Accepted Answer

The answer of In which of the following instances would...

Question 2

Which of the following scenarios is consistent with the Laffer curve?

Accepted Answer

At a very low tax rate like 1 percent, tax revenue is expected to be low, which is consistent with the Laffer curve that suggests there is an optimal tax rate that maximizes revenue.

Question 3

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Accepted Answer

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied is known as supply-side economics. Choice A, California economics, is not a widely recognized term or concept in economics. Choice B, welfare economics, refers to the study of how to best allocate resources to achieve social welfare, rather than the effects of tax cuts on labor supply. Choice D, elasticity economics, refers to the study of how changes in prices affect the quantity demanded or supplied, but it does not specifically relate to tax cuts or labor supply.

Question 4

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Accepted Answer

The height of the triangle representing deadweight loss doubles because the tax itself, which is the height, is doubled.

Question 5

With linear demand and supply curves in a market,suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40.If the tax is increased to $0.50 per unit,the deadweight loss from the new tax will be

Accepted Answer

The answer of With linear demand and supply curves in...

Question 6

The graph that represents the amount of deadweight loss (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

Accepted Answer

Deadweight loss increases with the square of the tax size, so the graph is an upward-sloping curve.

Question 7

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is tripled,the

Accepted Answer

The deadweight loss of a tax is represented by a triangle, with the base of the triangle representing the change in quantity and the height of the triangle representing the change in price. If the tax is tripled, the change in quantity will triple, and the change in price will also triple. This means that the base of the triangle will triple, the height of the triangle will triple, and the area of the triangle (which represents the deadweight loss) will increase by a factor of nine.

Question 8

Ronald Reagan believed that reducing income tax rates would

Accepted Answer

Ronald Reagan believed in supply-side economics, which holds that lowering tax rates will increase economic growth and ultimately lead to higher tax revenue. This theory suggests that reducing income tax rates will encourage people to work harder, leading to increased economic activity and higher government revenue. So, the answer is C - reducing income tax rates would raise economic well-being and perhaps even tax revenue.

Question 9

The Laffer curve relates

Accepted Answer

The Laffer curve shows the relationship between the tax rate and the tax revenue raised by that tax. The curve illustrates that as tax rates increase, tax revenue initially increases, but then eventually reaches a point where further increases in the tax rate actually lead to a decrease in tax revenue. This is because higher tax rates can discourage economic activity and result in tax avoidance or evasion.

Question 10

Supply-side economics is a term associated with the views of

Accepted Answer

Supply-side economics is a theory that advocates for reducing taxes and regulations to increase the production (supply) of goods and services, leading to economic growth. Ronald Reagan, the 40th US President, and Arthur Laffer, an economist, are often associated with the popularization of this theory during the 1980s.

Question 11

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Accepted Answer

The deadweight loss of a tax is represented by a triangle. The base of the triangle is the change in quantity supplied, and the height of the triangle is the change in price. If the tax is doubled, the change in quantity supplied will double, and the change in price will also double. This means that the base of the triangle will double, and the height of the triangle will double. Therefore, the deadweight loss of the tax will quadruple.

Question 12

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon.As a result,

Accepted Answer

A decrease in the tax on gasoline reduces the deadweight loss because the tax is less distortionary, leading to a more efficient allocation of resources.

Question 13

Suppose that the market for large,64-ounce soft drinks in the town of Pudgyville is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.The market is initially in equilibrium with 1,000 soft drinks sold per day.The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks.She is considering either a $0.10 tax or a $0.30 tax.Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500.Which tax is better?

Accepted Answer

Both taxes will increase the price of 64-ounce soft drinks and reduce the quantity demanded. However, the $0.30 tax will have a larger effect on reducing quantity demanded than the $0.10 tax. As a result, the $0.30 tax will create a larger deadweight loss, which represents a loss of consumer and producer surplus due to the inefficiency of the tax. Although the $0.30 tax raises more tax revenue, this is not enough to offset the larger deadweight loss. Therefore, the $0.10 tax is a better choice because it creates a lower deadweight loss than the $0.30 tax, even though it raises less tax revenue.

Question 14

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

Accepted Answer

When a country is on the downward-sloping side of the Laffer curve, a cut in the tax rate will increase tax revenue because it encourages more economic activity and decreases the deadweight loss by making the tax system more efficient.

Question 15

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

Accepted Answer

The answer of In which of the following instances would...

Question 16

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

Accepted Answer

The deadweight loss of a tax is the loss of consumer and producer surplus that results from the tax. When the tax on gasoline increases, the deadweight loss increases because the quantity of gasoline consumed decreases. The larger the tax increase, the greater the deadweight loss. Therefore, the correct answer is B, which represents the largest tax increase.

Question 17

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

Accepted Answer

According to Arthur Laffer's theory of supply-side economics, the graph of tax revenue as a function of tax rates follows an upside-down U shape, known as the Laffer curve. At very low tax rates, increasing taxes can lead to increased revenue. However, at some point, further increases in taxes lead to a decline in revenue because they create disincentives to work, invest, and innovate, thus reducing the tax base. The optimal tax rate that maximizes revenue is somewhere in the middle of the curve.

Question 18

Which of the following scenarios is not consistent with the Laffer curve?

Accepted Answer

The Laffer curve suggests that at very high tax rates, tax revenue will decrease due to decreased economic activity and tax avoidance, so high tax rates with high revenue is inconsistent.

Question 19

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Accepted Answer

An increase in the tax per gallon of gasoline will always increase the deadweight loss, as it increases the gap between the price paid by buyers and received by sellers. Options A and B may or may not affect the size of deadweight loss, as it depends on the magnitude of the changes in elasticity and slope of the curves, respectively.

Question 20

The higher a country's tax rates,the more likely that country will be

Accepted Answer

The Laffer curve illustrates the relationship between tax rates and government revenue. As tax rates increase, there comes a point (the revenue-maximizing point) beyond which people's incentives to work and invest decrease, leading to a decrease in the government's overall revenue. The negatively sloped part of the Laffer curve represents this point, where further increases in tax rates lead to a decrease in government revenue. Therefore, a country with high tax rates is more likely to be on the negatively sloped part of the Laffer curve.

Quiz 8: Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?

Which of the following scenarios is consistent with the Laffer curve?

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

With linear demand and supply curves in a market,suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40.If the tax is increased to $0.50 per unit,the deadweight loss from the new tax will be

The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is tripled,the

Ronald Reagan believed that reducing income tax rates would

The Laffer curve relates

Supply-side economics is a term associated with the views of

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon.As a result,

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Which of the following scenarios is not consistent with the Laffer curve?

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

The higher a country's tax rates,the more likely that country will be