Chapter 8 Application: The Costs of Taxation

Test B
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. The effect of a tax placed on a good will be to a. lower both the price buyers pay and the price sellers receive. b. raise both the price buyers pay and the price sellers receive. c. raise the price buyers pay and lower the price sellers receive. d. lower the price buyers pay and raise the price sellers receive. ANSWER c. raise the price buyers pay and lower the price sellers receive. T!"E # $E!1 % &'(E)T*+E 1 RAN%&# !
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*f a tax is levied on the supplier of a product- the a. supply curve will shift upward or to the left. b. supply curve will shift downward or to the right. c. de.and curve will shift upward or to the right. d. de.and curve will shift downward or to the left. ANSWER a. supply curve will shift upward or to the left. T!"E # $E!1 % SE)T*&N 1 &'(E)T*+E 1 RAN%&# !
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0lti.ately- it does not .atter whether a tax is levied on the buyer or seller of the good because a. sellers always bear the full burden of the tax. b. buyers always bear the full burden of the tax. c. buyers and sellers will share the burden of the tax. d. sellers bear the full burden if the tax is levied on the.- and buyers bear the full burden if the tax is levied on the.. ANSWER c. buyers and sellers will share the burden of the tax. T!"E # $E!1 ) SE)T*&N 1 &'(E)T*+E 1 RAN%&# ! NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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A tax on a good will affect welfare because it a. affects the behavior of buyers and sellers. b. causes the .ar2et to expand production beyond the opti.u. 3uantity. c. causes sellers to produce .ore than they would in the absence of the tax. d. causes buyers to purchase .ore than they would in the absence of the tax. ANSWER a. affects the behavior of buyers and sellers. T!"E # $E!1 ) SE)T*&N 1 &'(E)T*+E 1 RAN%&# !
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The ter. used by econo.ists for the benefit received by buyers in a .ar2et is a. producer surplus. b. consu.er surplus. c. total expenditures. d. willingness to pay. ANSWER b. consu.er surplus. T!"E # $E!1 % SE)T*&N 1 &'(E)T*+E 1 RAN%&# !

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89 )hapter 7:Application The )osts of Taxation NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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%eadweight loss refers to the a. transfer of resources fro. buyers to sellers. b. decrease in total surplus that results fro. a tax. c. increase in producer surplus that results fro. a tax. d. decrease in govern.ent revenue that occurs when a tax rate is increased beyond its opti.u.. ANSWER b. decrease in total surplus that results fro. a tax. T!"E # $E!1 % SE)T*&N 1 &'(E)T*+E 1 RAN%&# !

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According to the graph- the e3uilibriu. .ar2et price and e3uilibriu. 3uantity before the tax is i.posed is a. =19- /9. b. =11- ;9. c. =18- /9. d. =,1- ;9. ANSWER b. =11- ;9. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- the price buyers pay after the tax is a. =18. b. =11. c. =19. d. = ;. ANSWER a. =18. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- the price sellers receive after the tax is a. =18. b. =11. c. =19. d. = ;. ANSWER c. =19. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !

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)hapter 7:Application The )osts of Taxation 81

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According to the graph- consu.er surplus before the tax was levied e3ualed a. =/99. b. =,19. c. =1,9. d. = ;9. ANSWER a. =/99. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- producer surplus before the tax e3ualed a. =/99. b. =,19. c. =1,9. d. = ;9. ANSWER b. =,19. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- consu.er surplus after the tax is i.posed would be a. =,99. b. =1,4. c. = <4. d. = 49. ANSWER c. = <4. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- producer surplus after the tax is i.posed would be a. =1,4. b. =199. c. = 79. d. = ;9. ANSWER d. =;9. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- the benefits to the govern.ent @total tax revenueA would be a. =/99. b. =,<9. c. =,,9. d. =179. ANSWER b. =,<9. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- the total surplus before the tax would e3ual a. =;/9. b. =419. c. =149. d. =/;9. ANSWER b. =419. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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According to the graph- the total surplus @consu.er- producer- and govern.entA with the tax would e3ual a. =419. b. =194. c. =/44. d. =,14. ANSWER b. =194. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !

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8, )hapter 7:Application The )osts of Taxation

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According to the graph- the a.ount of deadweight loss in this .ar2et resulting fro. the levying of the tax is a. =74. b. =114. c. =1/4. d. =1;4. ANSWER c. =1/4. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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What deter.ines the a.ount of deadweight loss that will result fro. a taxB a. the price elasticity of de.and and supply b. the nu.ber of buyers of the product in the .ar2et c. the nu.ber of suppliers of the product in the .ar2et d. the percentage of the purchase price the tax a.ounts to ANSWER a. the price elasticity of de.and and supply T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !
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Assu.e that the de.and for potato chips is relatively inelastic and that the de.and for Snic2ers is relatively elastic. *f the sa.e percentage tax were placed on both goods- the tax on which product would create a larger deadweight lossB a. the tax on potato chips b. the tax on Snic2ers c. The taxes would create the sa.e a.ount of deadweight loss. d. This 3uestion is i.possible to answer without 2nowing the price of both potato chips and Snic2ers. ANSWER b. the tax on Snic2ers T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !
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Which of the following is generally considered to be the .ost i.portant tax in the 0.S. econo.yB a. the inco.e tax b. the tax on labor c. the inheritance or death tax d. corporate profit taxes ANSWER b. the tax on labor T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !
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Taxes i.posed on labor will encourage each of the following EC)E"T a. overti.e. b. stayDatDho.e .others. c. early retire.ent by older wor2ers. d. underDtheDtable pay.ents to wor2ers. ANSWER a. overti.e. T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !
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The result of a tax placed on land would be a. a huge deadweight tax loss. b. no deadweight tax loss. c. that landlords would not have to bear any of the burden of the tax. d. that enough tax revenue would be raised by the govern.ent that all other taxes could be eli.inated. ANSWER b. no deadweight tax loss. T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !

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)hapter 7:Application The )osts of Taxation 8/

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*f the siEe of a tax is tripled- the deadweight loss fro. the tax would a. double. b. triple. c. increase by six ti.es. d. increase by nine ti.es. ANSWER d. increase by nine ti.es. T!"E # $E!1 % SE)T*&N / &'(E)T*+E 1 RAN%&# !
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Ronald Reagan and Arthur Faffer both believed that reducing inco.e tax rates would a. increase the national debt. b. decrease govern.ent tax collections. c. increase govern.ent tax collections. d. not change the a.ount of revenue the govern.ent collected. ANSWER c. increase govern.ent tax collections. T!"E # $E!1 % SE)T*&N / &'(E)T*+E / RAN%&# ! NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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)ritics of supplyDside econo.ics suggest that substantial tax cuts would lead to a. significant recession. b. .inor inflationary increases. c. large govern.ent deficits. d. taxpayer revolts. ANSWER c. large govern.ent deficits. T!"E # $E!1 % SE)T*&N / &'(E)T*+E / RAN%&# !

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ANSWER c. raise the price buyers pay and lower the price sellers receive. T!"E # $E!1 % &'(E)T*+E 1 RAN%&# !
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ANSWER a. supply curve upward or to the left. T!"E # $E!1 % SE)T*&N 1 &'(E)T*+E 1 RAN%&# !
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ANSWER c. buyers and sellers share the burden of the tax. T!"E # $E!1 ) SE)T*&N 1 &'(E)T*+E 1 RAN%&# !
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ANSWER a. affects the behavior of buyers and sellers. T!"E # $E!1 ) SE)T*&N 1 &'(E)T*+E 1 RAN%&# !
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ANSWER b. consu.er surplus. T!"E # $E!1 % SE)T*&N 1 &'(E)T*+E 1 RAN%&# !

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ANSWER b. decrease in total surplus that results fro. a tax. T!"E # $E!1 % SE)T*&N 1 &'(E)T*+E 1 RAN%&# !
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ANSWER b. =11- ;9. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #
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ANSWER a. =18. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #

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ANSWER c. =19. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #

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ANSWER a. =/99. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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ANSWER b. =,19. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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ANSWER c. = <4. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #

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ANSWER d. =;9. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #

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ANSWER b. =,<9. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !
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ANSWER b. =419.

T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT # RAN%&# !

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ANSWER b. =194. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #

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ANSWER c. =1/4. T!"E # $E!1 > SE)T*&N 1 &'(E)T*+E 1 >RA"6 ?&R#AT #

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RAN%&# !

ANSWER a. the price elasticity of de.and and supply T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !
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ANSWER b. the tax on Snic2ers T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !

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ANSWER b. the tax on labor T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !

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ANSWER a. overti.e. T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !

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ANSWER b. no deadweight tax loss. T!"E # $E!1 % SE)T*&N , &'(E)T*+E , RAN%&# !

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ANSWER d. increases by nine ti.es. T!"E # $E!1 % SE)T*&N / &'(E)T*+E 1 RAN%&# !

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ANSWER c. increase govern.ent tax collections. T!"E # $E!1 % SE)T*&N / &'(E)T*+E / RAN%&# !
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ANSWER c. large govern.ent deficits. T!"E # $E!1 % SE)T*&N / &'(E)T*+E / RAN%&# !