Question 1

A tax on milk would likely cause a decrease in the price of

Accepted Answer

The answer of A tax on milk would likely cause...

Question 2

Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

Accepted Answer

If a tax is imposed on peanut butter, the price of peanut butter will increase, leading to a decrease in the demand for peanut butter. As peanut butter and jelly are complements, the decrease in demand for peanut butter will lead to a decrease in the demand for jelly as well. Therefore, the demand for jelly will decrease along with the price.

Question 3

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the

Accepted Answer

In the long run, both suppliers and consumers have more flexibility to adjust to changes in prices, resulting in a more elastic response to changes in demand and supply. This means that the deadweight loss from a tax will be greater in the long run as the tax burden will be shifted more towards less elastic groups. Thus, the government may need to reduce the tax rates in the long run to prevent the deadweight loss from becoming too significant.

Question 4

If the government wants to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a

Accepted Answer

If the government raises taxes on a good with perfectly inelastic demand, consumers will continue purchasing the good even with the tax increase, so there will be no decrease in demand. This means that the deadweight loss (the loss of economic efficiency due to the tax) will be zero, and the government can generate revenue without causing any reduction in overall economic activity.

Question 5

A tax creates no deadweight loss only when either supply or demand is

Accepted Answer

When either supply or demand is perfectly inelastic, it means that the quantity supplied or demanded is not affected by changes in price. Therefore, no deadweight loss is created, as the tax burden can be entirely passed on to consumers or producers without affecting the quantity exchanged in the market. In contrast, when either supply or demand is elastic or even somewhat elastic, a tax will create deadweight loss because it will reduce the quantity exchanged in the market, as producers or consumers will be less willing to participate at the higher taxed price.

Question 6

Compared to producers, consumers will lose the lesser amount of surplus from a tax if

Accepted Answer

When demand is more elastic than supply, consumers are more sensitive to changes in price and therefore will adjust their consumption more in response to a tax. This means that producers will be forced to bear more of the tax burden, resulting in less loss of surplus for consumers.

Question 7

Deadweight loss is defined as

Accepted Answer

Deadweight loss is the economic inefficiency that occurs when the equilibrium for a good or service is not achieved. This can happen when there are distortions in the market, such as taxes or subsidies, that cause the quantity produced and consumed to differ from the optimal level. Deadweight loss represents the value of the reduction in economic welfare that could have been achieved if the market was operating efficiently.

Question 8

The deadweight loss from a tax is likely to be greater with a good that has

Accepted Answer

The answer of The deadweight loss from a tax is...

Question 9

The net cost to society from the imposition of a tax is also known as

Accepted Answer

Deadweight loss represents the loss of total surplus (consumer and producer surplus) that arises from a tax and reflects the reduction in social welfare. It is therefore the net cost to society from the imposition of a tax. Tax revenue, consumer surplus, and producer surplus are all related to the effects of the tax on individuals or the government, but they do not represent the overall impact on society.

Question 10

The revenue generated from a tax equals the

Accepted Answer

The revenue generated from a tax is calculated by multiplying the amount of the tax by the quantity sold of the good after the tax is imposed. This is because the tax increases the price of the good, which results in a lower quantity demanded, and thus, a lower quantity sold. Therefore, the revenue generated from the tax is not equal to the original price of the good or the total social welfare lost or deadweight loss from the tax or consumer and producer surplus before the tax.

Question 11

The cost to society created by distortions in the market as a result of a tax is also known as

Accepted Answer

Deadweight loss refers to the cost to society created by distortions in the market as a result of a tax.

Question 12

Compared to producers, consumers will lose the greater amount of surplus from a tax if

Accepted Answer

When demand is less elastic than supply, consumers are less responsive to price changes and will bear a larger burden of the tax, leading to a greater loss in consumer surplus.

Question 13

Butter and margarine are substitute goods. A tax on butter will have what effect on the market for margarine?

Accepted Answer

As butter and margarine are substitute goods, when the tax on butter increases, the price of butter will also increase. This will lead consumers to switch to margarine, increasing its demand. As a result, the equilibrium price of margarine will rise, and the equilibrium quantity will increase as well. Therefore, option B is the correct answer.

Question 14

The deadweight loss from a tax is likely to be less with a good that has

Accepted Answer

The deadweight loss from a tax is likely to be less with a good that has few substitutes because consumers and producers have fewer alternatives to avoid the tax, leading to a smaller reduction in the quantity traded and thus a smaller deadweight loss.

Question 15

Assume that a $0.10/pound tax on apples raises $100 million in revenue but causes a $125 million loss of consumer and producer surplus. From this information, we know that the deadweight loss from the tax is

Accepted Answer

The deadweight loss from the tax is the loss in consumer and producer surplus that is not offset by tax revenue, which is $125 million (total loss) - $100 million (tax revenue) = $25 million.

Question 16

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause (an)______ in deadweight loss in the market for gasoline and (an)______ .

Accepted Answer

If the government increases taxes on gasoline, it will become more expensive and consumers may start looking for alternative fuels such as ethanol. As a result, the demand for ethanol will increase, leading to an increase in its price. The increase in deadweight loss in the market for gasoline is because consumers have fewer options and are more likely to bear the burden of the tax. This suggests that the price of gasoline will also increase, leading to higher deadweight loss. Therefore, the correct answer is C.

Question 17

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is

Accepted Answer

The total loss in consumer and producer surplus is $250 million, which is the sum of the loss that consumers and producers experience as a result of the tax. This means that the tax revenue collected by the government is $250 million.

However, we also know that the tax creates a deadweight loss of $45 million. This is a loss of welfare that is not captured by either consumers or producers, but instead represents a loss of efficiency in the market. The fact that this deadweight loss exists means that the tax revenue does not equal the total loss in consumer and producer surplus. Rather, the tax revenue is equal to the total loss in consumer and producer surplus plus the deadweight loss:

Tax revenue = $250 million + $45 million = $205 million

Therefore, the correct answer is choice C.

Question 18

The deadweight loss from a tax is equal to one half of

Accepted Answer

The deadweight loss from a tax is equal to the loss of economic efficiency that occurs when the tax reduces the quantity sold of a good. This loss is calculated as the triangle formed between the supply and demand curves, with the base of the triangle equal to the decrease in quantity sold and the height equal to the difference between the price buyers pay with and without the tax. The size of the deadweight loss is proportional to the size of the tax and the magnitude of the change in quantity sold. So the correct answer is D, the amount of the tax multiplied by the decrease in quantity sold.

Question 19

The per-unit dollar amount of a tax times the quantity sold after the tax is imposed equals

Accepted Answer

The per-unit dollar amount of a tax times the quantity sold after the tax is imposed equals the tax revenue collected by the government.

Question 20

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the

Accepted Answer

As supply and demand become more elastic in the long run, producers and consumers have more options and alternatives, allowing them to adjust their behavior and purchases in response to changes in prices (such as taxes). This means that a tax will have a weaker effect on the market in the long run, leading to lower tax revenue and a smaller deadweight loss. Therefore, choice D is the best answer.

Quiz 4: Market Outcomes and Tax Incidence

A tax on milk would likely cause a decrease in the price of

Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the

If the government wants to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a

A tax creates no deadweight loss only when either supply or demand is

Compared to producers, consumers will lose the lesser amount of surplus from a tax if

Deadweight loss is defined as

The deadweight loss from a tax is likely to be greater with a good that has

The net cost to society from the imposition of a tax is also known as

The revenue generated from a tax equals the

The cost to society created by distortions in the market as a result of a tax is also known as

Compared to producers, consumers will lose the greater amount of surplus from a tax if

Butter and margarine are substitute goods. A tax on butter will have what effect on the market for margarine?

The deadweight loss from a tax is likely to be less with a good that has

Assume that a $0.10/pound tax on apples raises $100 million in revenue but causes a $125 million loss of consumer and producer surplus. From this information, we know that the deadweight loss from the tax is

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause (an) in deadweight loss in the market for gasoline and (an) .

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is

The deadweight loss from a tax is equal to one half of

The per-unit dollar amount of a tax times the quantity sold after the tax is imposed equals

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the

Quiz 4: Market Outcomes and Tax Incidence

A tax on milk would likely cause a decrease in the price of

Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that affect the market for jelly?

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the

If the government wants to raise taxes while generating the least amount of deadweight loss, it should raise taxes on a good with a

A tax creates no deadweight loss only when either supply or demand is

Compared to producers, consumers will lose the lesser amount of surplus from a tax if

Deadweight loss is defined as

The deadweight loss from a tax is likely to be greater with a good that has

The net cost to society from the imposition of a tax is also known as

The revenue generated from a tax equals the

The cost to society created by distortions in the market as a result of a tax is also known as

Compared to producers, consumers will lose the greater amount of surplus from a tax if

Butter and margarine are substitute goods. A tax on butter will have what effect on the market for margarine?

The deadweight loss from a tax is likely to be less with a good that has

Assume that a $0.10/pound tax on apples raises $100 million in revenue but causes a $125 million loss of consumer and producer surplus. From this information, we know that the deadweight loss from the tax is

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause (an) ______ in deadweight loss in the market for gasoline and (an) ______ .

Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer surplus and creates a deadweight loss of $45 million. From this information, we know that the tax revenue from the tax is

The deadweight loss from a tax is equal to one half of

The per-unit dollar amount of a tax times the quantity sold after the tax is imposed equals

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the

Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this will cause (an) in deadweight loss in the market for gasoline and (an) .