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Application: The Costs of Taxation
Multiple Choice – Section 00: Introduction
1. In 1776, the American Revolution was sparked by anger over

a. the extravagant lifestyle of British royalty.
b. the crimes of British soldiers stationed in the American colonies.
c. British taxes imposed on the American colonies.
d. the failure of the British to protect American colonists from attack by hostile Native Americans.
ANSWER: c
POINTS: 1
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: ECON.MANK.15.34 - LO: 8-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Thinking Like an Economist Overview of US Economy
KEYWORDS: BLOOM'S: Knowledge
2. Anger over British taxes played a significant role in bringing about the
a. election of John Adams as the second American president.
b. American Revolution.
c. War of 1812.
d. “no new taxes” clause in the U.S. Constitution.
ANSWER: b
POINTS: 1
1992 Application: The Costs of Taxation
3. Who once said that taxes are the price we pay for a civilized society?
a. Aristotle
b. George Washington
c. Oliver Wendell Holmes, Jr.
d. Ronald Reagan
ANSWER: c
POINTS: 1
TOPICS: DISC: Thinking Like an Economist
4. Who once said that taxes are the price we pay for a civilized society?
a. Milton Friedman
b. Theodore Roosevelt
c. Arthur Laffer
d. Oliver Wendell Holmes, Jr.
ANSWER: d
POINTS: 1
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Application: The Costs of Taxation 1993
5. To fully understand how taxes affect economic well-being, we must

a. assume that economic well-being is not affected if all tax revenue is spent on goods and services
for the people who are being taxed.
b. compare the taxes raised in the United States with those raised in other countries, especially
France.
c. compare the reduced welfare of buyers and sellers to the amount of revenue the government
raises.
d. take into account the fact that almost all taxes reduce the welfare of buyers, increase the
welfare of sellers, and raise revenue for the government.
ANSWER: c
POINTS: 1
DIFFICULTY: Difficulty: Moderate
TOPICS: DISC: Taxes
KEYWORDS: BLOOM'S: Comprehension
6. To fully understand how taxes affect economic well-being, we must compare the
a. benefit to buyers with the loss to sellers.
b. price paid by buyers to the price received by sellers.
c. profits earned by firms to the losses incurred by consumers.
d. decrease in total surplus to the increase in revenue raised by the government.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
7. To fully understand how taxes affect economic well-being, we must compare the
a. consumer surplus to the producer surplus.
b. price paid by buyers to the price received by sellers.
c. reduced welfare of buyers and sellers to the revenue raised by the government.
d. consumer surplus to the deadweight loss.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
8. Which of the following tools help us evaluate how taxes affect economic well-being?
(i) consumer surplus
(ii) producer surplus
(iii) tax revenue
(iv) deadweight loss
a. (i) and (ii) only
b. (i), (ii), and (iii) only
c. (iii) and (iv) only
d. (i), (ii), (iii), and (iv)
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Multiple Choice – Section 01: The Deadweight Loss of Taxation
1. When a tax is levied on a good, the buyers and sellers of the good share the burden,
a. provided the tax is levied on the sellers.
b. provided the tax is levied on the buyers.
c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the
sellers.
d. regardless of how the tax is levied.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
2. A tax on a good
a. raises the price that buyers effectively pay and raises the price that sellers effectively receive.
b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
3. When a tax is placed on a product, the price paid by buyers

a. rises, and the price received by sellers rises.
b. rises, and the price received by sellers falls.
c. falls, and the price received by sellers rises.
d. falls, and the price received by sellers falls.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
4. A tax affects
a. buyers only.
b. sellers only.
c. buyers and sellers only.
d. buyers, sellers, and the government.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
5. The government’s benefit from a tax can be measured by

a. consumer surplus.
b. producer surplus.
c. tax revenue.
d. All of the above are correct.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
6. What happens to the total surplus in a market when the government imposes a tax?
a. Total surplus increases by the amount of the tax.
b. Total surplus increases but by less than the amount of the tax.
c. Total surplus decreases.
d. Total surplus is unaffected by the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
KEYWORDS: BLOOM'S: Application
7. When a good is taxed,

a. both buyers and sellers of the good are made worse off.
b. only buyers are made worse off, because they ultimately bear the burden of the tax.
c. only sellers are made worse off, because they ultimately bear the burden of the tax.
d. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and
services that would otherwise not be provided in a market economy.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
8. To measure the gains and losses from a tax on a good, economists use the tools of
a. macroeconomics.
b. welfare economics.
c. international-trade theory.
d. circular-flow analysis.
ANSWER: b
POINTS: 1
TOPICS: DISC: Welfare Analysis

9. When a tax is imposed on a good, the
a. supply curve for the good always shifts.
b. demand curve for the good always shifts.
c. amount of the good that buyers are willing to buy at each price always remains unchanged.
d. equilibrium quantity of the good always decreases.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
10. A tax levied on the sellers of a good shifts the

a. supply curve upward (or to the left).
b. supply curve downward (or to the right).
c. demand curve upward (or to the right).
d. demand curve downward (or to the left).
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
11. A tax levied on the buyers of a good shifts the

a. supply curve upward (or to the left).
b. supply curve downward (or to the right).
c. demand curve downward (or to the left).
d. demand curve upward (or to the right).
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes

12. If a tax shifts the supply curve upward (or to the left), we can infer that the tax was levied on
a. buyers of the good.
b. sellers of the good.
c. both buyers and sellers of the good.
d. We cannot infer anything because the shift described is not consistent with a tax.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
13. If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
14. If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on
ANSWER: a
POINTS: 1

TOPICS: DISC: Taxes
15. If a tax shifts the demand curve upward (or to the right), we can infer that the tax was levied on
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
16. When a tax is imposed on the buyers of a good, the demand curve shifts
a. downward by the amount of the tax.
b. upward by the amount of the tax.
c. downward by less than the amount of the tax.
d. upward by more than the amount of the tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
17. When a tax is imposed on the sellers of a good, the

a. demand curve shifts downward by less than the amount of the tax.
b. demand curve shifts downward by the amount of the tax.
c. supply curve shifts upward by less than the amount of the tax.
d. supply curve shifts upward by the amount of the tax.
ANSWER: d
POINTS: 1

TOPICS: DISC: Taxes
18. A tax placed on buyers of tuxedoes shifts the

a. demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes
and causing the quantity of tuxedoes to increase.
b. demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes
and causing the quantity of tuxedoes to decrease.
c. supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes
and causing the quantity of tuxedoes to increase.
d. supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes
and causing the quantity of tuxedoes to decrease.
ANSWER: b
POINTS: 1
DIFFICULTY: Difficulty: Challenging
TOPICS: DISC: Taxes
NOTES: r
19. Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will
a. fall entirely on the buyers of fast-food French fries.
b. fall entirely on the sellers of fast-food French fries.
c. be shared equally by the buyers and sellers of fast-food French fries.
d. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
20. It does not matter whether a tax is levied on the buyers or the sellers of a 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. None of the above is correct; the incidence of the tax does depend on whether the buyers or
the sellers are required to pay the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
21. When motorcycles are taxed and sellers of motorcycles are required to pay the tax to the
government,
a. the quantity of motorcycles bought and sold in the market is reduced.
b. the price paid by buyers of motorcycles decreases.
c. the demand for motorcycles decreases.
d. there is a movement downward and to the right along the demand curve for motorcycles.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
22. One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the
a. equilibrium quantity of the good is unchanged.
b. price the buyer effectively pays is lower.
c. supply curve for the good shifts upward by the amount of the tax.
d. tax reduces the welfare of both buyers and sellers.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
23. When a tax is placed on the buyers of a product, a result is that buyers effectively pay
a. less than before the tax, and sellers effectively receive less than before the tax.
b. less than before the tax, and sellers effectively receive more than before the tax.
c. more than before the tax, and sellers effectively receive less than before the tax.
d. more than before the tax, and sellers effectively receive more than before the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
24. When a tax is levied on a good,

a. neither buyers nor sellers are made worse off.
b. only sellers are made worse off.
c. only buyers are made worse off.
d. both buyers and sellers are made worse off.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes

25. When a tax is levied on the buyers of a good, the
a. supply curve shifts upward by the amount of the tax.
b. quantity supplied increases for all conceivable prices of the good.
c. buyers of the good will send tax payments to the government.
d. demand curve shifts to the right by the horizontal distance of the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
26. When a tax is levied on the sellers of a good, the

a. supply curve shifts upward by the amount of the tax.
b. quantity demanded decreases for all conceivable prices of the good.
c. quantity supplied increases for all conceivable prices of the good.
d. None of the above is correct.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
27. A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve
a. downward by exactly $2.
b. downward by less than $2.
c. upward by exactly $2.
d. upward by less than $2.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
28. When a tax on a good is enacted,

a. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers
or on sellers.
b. buyers always bear the full burden of the tax.
c. sellers always bear the full burden of the tax.
d. sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of
the tax if the tax is levied on them.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
29. A tax placed on a good

a. causes the effective price to sellers to increase.
b. affects the welfare of buyers of the good but not the welfare of sellers.
c. causes the equilibrium quantity of the good to decrease.
d. creates a burden that is usually borne entirely by the sellers of the good.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
30. When a tax is levied on buyers of a good,

a. government collects too little revenue to justify the tax if the equilibrium quantity of the good
decreases as a result of the tax.
b. there is an increase in the quantity of the good supplied.
c. a wedge is placed between the price buyers pay and the price sellers effectively receive.
d. the effective price to buyers decreases because the demand curve shifts leftward.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes

a. government collects revenues which might justify the loss in total welfare.
b. there is a decrease in the quantity of the good bought and sold in the market.
c. a wedge is placed between the price buyers pay and the price sellers effectively receive.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes

a. government revenues exceed the loss in total welfare.
b. there is a decrease in the quantity of the good bought and sold in the market.
c. the price that sellers receive exceeds the price that buyers pay.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
33. The benefit to buyers of participating in a market is measured by

a. the price elasticity of demand.
b. consumer surplus.
c. the maximum amount that buyers are willing to pay for the good.
d. the equilibrium price.
ANSWER: b
POINTS: 1
TOPICS: DISC: Welfare Analysis Consumer Surplus
34. The benefit to buyers of participating in a market is measured by

a. consumer surplus.
c. total surplus.
d. deadweight loss.
ANSWER: a
POINTS: 1
35. The benefit to sellers of participating in a market is measured by the

a. amount of taxes collected on sales of the good.
c. amount sellers receive for their product.
d. sellers' willingness to sell.
ANSWER: b
POINTS: 1
TOPICS: DISC: Welfare Analysis Producer Surplus
36. The benefit that government receives from a tax is measured by

a. the change in the equilibrium quantity of the good.
b. the change in the equilibrium price of the good.
c. tax revenue.
d. total surplus.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
37. The benefit that government receives from a tax is measured by

a. deadweight loss.
b. consumer surplus.
c. tax incidence.
d. tax revenue.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
38. If T represents the size of the tax on a good and Q represents the quantity of the good that is
sold, total tax revenue received by government can be expressed as
a. T/Q.
b. T+Q.
c. TxQ.
d. (TxQ)/Q.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
39. When a tax is levied on buyers, the

a. supply curves shifts upward by the amount of the tax.
b. tax creates a wedge between the price buyers effectively pay and the price sellers receive.
c. tax has no effect on the well-being of sellers.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
40. For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a
direct measure of the
a. government's benefit from the tax.
b. government's loss from the tax.
c. deadweight loss of the tax.
d. overall net gain to society of the tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
41. The decrease in total surplus that results from a market distortion, such as a tax, is called a
a. wedge loss.
b. revenue loss.
c. deadweight loss.
d. consumer surplus loss.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
42. A tax on a good

a. gives buyers an incentive to buy less of the good than they otherwise would buy.
b. gives sellers an incentive to produce more of the good than they otherwise would produce.
c. creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and
sellers.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
43. When the price of a good is measured in dollars, then the size of the deadweight loss that results
from taxing that good is measured in
a. units of the good that is being taxed.
b. units of a related good that is not being taxed.
c. dollars.
d. percentage change.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
KEYWORDS: BLOOM'S: Analysis
44. When the government places a tax on a product, the cost of the tax to buyers and sellers
a. is less than the revenue raised from the tax by the government.
b. is equal to the revenue raised from the tax by the government.
c. exceeds the revenue raised from the tax by the government.
d. Without additional information, such as the elasticity of demand for this product, it is impossible
to compare the cost of a tax to buyers and sellers with tax revenue.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
45. Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the
quantity of gasoline demanded to
a. decrease and the quantity of gasoline supplied to decrease.
b. decrease and the quantity of gasoline supplied to increase.
c. increase and the quantity of gasoline supplied to decrease.
d. increase and the quantity of gasoline supplied to increase.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
46. Which of the following quantities decrease in response to a tax on a good?

a. the equilibrium quantity in the market for the good, the effective price of the good paid by
buyers, and consumer surplus
b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of
buyers of the good
c. the effective price received by sellers of the good, the wedge between the effective price paid
by buyers and the effective price received by sellers, and consumer surplus
d. None of the above is necessarily correct unless we know whether the tax is levied on buyers
or on sellers.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
47. For a good that is taxed, the area on the relevant supply-and-demand graph that represents
government’s tax revenue is a
a. triangle.
b. rectangle.
c. trapezoid.
d. None of the above is correct; government’s tax revenue is the area between the supply and
demand curves, above the horizontal axis, and below the effective price to buyers
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes'
48. For a good that is taxed, the area on the relevant supply-and-demand graph that represents
government’s tax revenue is
a. smaller than the area that represents the loss of consumer surplus and producer surplus caused
by the tax.
b. bounded by the supply curve, the demand curve, the effective price paid by buyers, and the
effective price received by sellers.
c. a right triangle.
d. a triangle, but not necessarily a right triangle.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
49. Total surplus with a tax is equal to

a. consumer surplus plus producer surplus.
b. consumer surplus minus producer surplus.
c. consumer surplus plus producer surplus minus tax revenue.
d. consumer surplus plus producer surplus plus tax revenue.
ANSWER: d
POINTS: 1
50. Taxes cause deadweight losses because they

a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax
revenue collected by the government.
b. distort incentives to both buyers and sellers.
c. prevent buyers and sellers from realizing some of the gains from trade.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
51. Taxes cause deadweight losses because taxes

a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
b. prevent buyers and sellers from realizing some of the gains from trade.
c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to
fall.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
52. Deadweight loss measures the loss

a. in a market to buyers and sellers that is not offset by an increase in government revenue.
b. in revenue to the government when buyers choose to buy less of the product because of the
tax.
c. of equality in a market due to government intervention.
d. of total revenue to business firms due to the price wedge caused by the tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
53. The loss in total surplus resulting from a tax is called

a. a deficit.
b. economic loss.
c. deadweight loss.
d. inefficiency.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
54. Deadweight loss is the

a. decline in total surplus that results from a tax.
b. decline in government revenue when taxes are reduced in a market.
c. decline in consumer surplus when a tax is placed on buyers.
d. loss of profits to business firms when a tax is imposed.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
55. A deadweight loss is a consequence of a tax on a good because the tax

a. induces the government to increase its expenditures.
b. induces buyers to consume less, and sellers to produce less.
c. increases the equilibrium price in the market.
d. imposes a loss on buyers that is greater than the loss to sellers.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
56. The supply curve for motor oil is the typical upward-sloping straight line, and the demand curve for
motor oil is the typical downward-sloping straight line. When motor oil is taxed, the area on the
relevant supply-and-demand graph that represents the deadweight loss is
a. larger than the area that represents consumer surplus in the absence of the tax.
b. larger than the area that represents government’s tax revenue.
c. a triangle.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
57. The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for
whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the
relevant supply-and-demand graph that represents
a. government’s tax revenue is a rectangle.
b. the deadweight loss of the tax is a triangle.
c. the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
58. For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is
the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax
reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is
a. $1,750.
b. $2,250.
c. $3,000.
d. $4,500.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
59. In the market for widgets, the supply curve is the typical upward-sloping straight line, and the
demand curve is the typical downward-sloping straight line. 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 $800 per month in tax revenue. We can conclude that the
equilibrium quantity of widgets has fallen by
a. 40 per month.
b. 50 per month.
c. 75 per month.
d. 100 per month.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a
result, the government is able to raise $750 per month in tax revenue. We can conclude that the
after-tax quantity of widgets is
a. 75 per month.
b. 100 per month.
c. 125 per month.
d. 150 per month.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
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
a. $250.
b. $125.
c. $75.
d. $50.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-1
62. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the
tax is measured by the area
a. I+Y.
b. J+K+L+M.
c. L+M+Y.
d. I+J+K+L+M+Y.
ANSWER: d
POINTS: 1
63. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by
I+J+K+L+M+Y represents
a. total surplus before the tax.
b. total surplus after the tax.
c. consumer surplus before the tax.
d. deadweight loss from the tax.
ANSWER: a
POINTS: 1
64. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the
tax is measured by the area
a. I+Y.
b. J+K+L+M.
c. I+Y+B.
d. I+J+K+L+M+Y.
ANSWER: b
POINTS: 1
J+K+L+M represents
a. total surplus after the tax.
b. total surplus before the tax.
c. deadweight loss from the tax.
d. tax revenue.
ANSWER: a
POINTS: 1
K+L represents
a. tax revenue.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. total surplus before the tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
67. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is
measured by the area
a. K+L.
b. I+Y.
c. J+K+L+M.
d. I+J+K+L+M+Y.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
L+M+Y represents
a. consumer surplus after the tax.
d. producer surplus before the tax.
ANSWER: d
POINTS: 1
69. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus
before the tax is measured by the area
a. I+J+K.
b. I+Y.
c. L+M+Y.
d. M.
ANSWER: c
POINTS: 1
M represents
ANSWER: c
POINTS: 1
71. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus
after the tax is measured by the area
a. M.
b. L+M+N+Y+B.
c. L+M+Y.
d. J.
ANSWER: a
POINTS: 1
J+K+I represents
ANSWER: b
POINTS: 1
73. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus
before the tax is measured by the area
a. M.
b. L+M+Y.
c. J.
d. J+K+I.
ANSWER: d
POINTS: 1
J represents
ANSWER: a
POINTS: 1
75. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus
after the tax is measured by the area
a. J+K+I.
b. J.
c. M.
d. L+M+Y.
ANSWER: b
POINTS: 1
I+Y represents the
a. deadweight loss due to the tax.
b. loss in consumer surplus due to the tax.
c. loss in producer surplus due to the tax.
d. total surplus before the tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
77. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss
due to the tax is measured by the area
a. J+K+L+M.
b. J+K+L+M+N.
c. I+Y.
d. I+Y+B.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-2
The vertical distance between points A and B represents a tax in the market.
78. Refer to Figure 8-2. The imposition of the tax causes the quantity sold to
a. increase by 1 unit.
b. decrease by 1 unit.
c. increase by 2 units.
d. decrease by 2 units.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
79. Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to
a. decrease by $2.
b. increase by $3.
c. decrease by $4.
d. increase by $5.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
80. Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to
a. decrease by $2.
b. increase by $3.
c. decrease by $4.
d. increase by $5.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
81. Refer to Figure 8-2. The amount of the tax on each unit of the good is
a. $1.
b. $4.
c. $5.
d. $9.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
82. Refer to Figure 8-2. The per-unit burden of the tax on buyers is
a. $2.
b. $3.
c. $4.
d. $5.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
83. Refer to Figure 8-2. The per-unit burden of the tax on sellers is
a. $2.
b. $3.
c. $4.
d. $5.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
84. Refer to Figure 8-2. The amount of tax revenue received by the government is
a. $2.50.
b. $4.
c. $5.
d. $9.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
85. Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is
a. $2.50.
b. $5.
c. $7.50.
d. $10.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
86. Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is
a. $1.50.
b. $3.
c. $4.50.
d. $6.
ANSWER: c
POINTS: 1
87. Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
a. $1.
b. $2.
c. $3.
d. $4.
ANSWER: c
POINTS: 1
88. Refer to Figure 8-2. Consumer surplus without the tax is

a. $6, and consumer surplus with the tax is $1.50.
b. $6, and consumer surplus with the tax is $4.50.
c. $10, and consumer surplus with the tax is $1.50.
d. $10, and consumer surplus with the tax is $4.50.
ANSWER: a
POINTS: 1
89. Refer to Figure 8-2. Producer surplus without the tax is

a. $4, and producer surplus with the tax is $1.
b. $4, and producer surplus with the tax is $3.
c. $10, and producer surplus with the tax is $1.
d. $10, and producer surplus with the tax is $3.
ANSWER: a
POINTS: 1
90. Refer to Figure 8-2. Total surplus without the tax is

a. $10, and total surplus with the tax is $2.50.
b. $10, and total surplus with the tax is $7.50.
c. $20, and total surplus with the tax is $2.50.
d. $20, and total surplus with the tax is $7.50.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
91. Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of
the market as a result of the tax is
a. $0.
b. $1.50.
c. $3.
d. $4.50.
ANSWER: b
POINTS: 1
92. Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to
buy it after the tax is imposed is
a. $0.
b. $1.50.
c. $3.
d. $4.50.
ANSWER: c
POINTS: 1
93. Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of
the market as a result of the tax is
a. $0.
b. $1.
c. $2.
d. $3.
ANSWER: b
POINTS: 1
94. Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to
sell it after the tax is imposed is
a. $0.
b. $1.
c. $2.
d. $3.
ANSWER: c
POINTS: 1
Figure 8-3
The vertical distance between points A and C represents a tax in the market.
95. Refer to Figure 8-3. The equilibrium price before the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
96. Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
97. Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
98. Refer to Figure 8-3. The per unit burden of the tax on buyers is
a. P3 - P1.
b. P3 - P2.
c. P2 - P1.
d. P4 - P3.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
a. P3 - P1.
b. P3 - P2.
c. P2 - P1.
d. P4 - P3.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
a. P3 - P1.
b. P3 - P2.
c. P2 - P1.
d. P4 - P3.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
101. Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the
area
a. P3ACP1.
b. ABC.
c. P2DAP3.
d. P1CDP2.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
102. Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to
a. P3ACP1.
b. ABC.
c. P2ADP3.
d. P1DCP2.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
103. Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area
a. P1P3AC.
b. P3ABP2.
c. P1P3ABC.
d. ABC.
ANSWER: b
POINTS: 1
104. Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area
a. ABC.
b. P1P3ABC.
c. P1P2BC.
d. P1C0.
ANSWER: c
POINTS: 1
105. Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax
provides to the government?
a. Tax revenue = (P2 - P1)xQ1
b. Tax revenue = (P3 - P1)xQ1
c. Tax revenue = (P3 - P2)xQ1
d. Tax revenue = (P3 - P1)x(Q2 - Q1)
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
106. Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the
tax?
a. Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1)
b. Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1)
c. Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1)
d. Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-4
a. $12, and the equilibrium quantity is 35.
b. $8, and the equilibrium quantity is 50.
c. $5, and the equilibrium quantity is 35.
d. $5, and the equilibrium quantity is 50.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
a. $12.
b. between $8 and $12.
c. between $5 and $8.
d. $5.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
a. $12.
b. between $8 and $12.
c. between $5 and $8.
d. $5.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
a. $3.
b. $4.
c. $5.
d. $8.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
a. $7.
b. $5.
c. $4.
d. $3.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
a. $5.
b. $7.
c. $8.
d. $12.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
113. Refer to Figure 8-4. The amount of tax revenue received by the government is equal to
a. $245.
b. $350.
c. $490.
d. $700.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
114. Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is
a. $35.00.
b. $45.25.
c. $52.50.
d. $105.00.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
115. Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to
a. $105.
b. $140.
c. $170.
d. $210.
ANSWER: c
POINTS: 1
NOTES: r
116. Refer to Figure 8-4. The tax results in a loss of producer surplus that amounts to
a. $75.50.
b. $90.00.
c. $112.50.
d. $127.50.
ANSWER: d
POINTS: 1
NOTES: r
Figure 8-5
Suppose that the government imposes a tax of P3 - P1.
a. P1.
b. P2.
c. P3.
d. P4.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
a. P1.
b. P2.
c. P3.
d. P4.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
a. P1.
b. P2.
c. P3.
d. P4.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
120. Refer to Figure 8-5. The tax is levied on

a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. This is impossible to determine from the figure.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
121. Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANSWER: b
POINTS: 1
122. Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANSWER: c
POINTS: 1
123. Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANSWER: a
POINTS: 1
124. Refer to Figure 8-5. After the tax is levied, producer surplus is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANSWER: d
POINTS: 1
125. Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by
area
a. A.
b. B+C.
c. C+H.
d. F.
ANSWER: b
POINTS: 1
126. Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area
a. A.
b. C+H.
c. D+H.
d. F.
ANSWER: c
POINTS: 1

127. Refer to Figure 8-5. The benefit to the government is measured by
a. tax revenue and is represented by area A+B.
b. tax revenue and is represented by area B+D.
c. the net gain in total surplus and is represented by area B+D.
d. the net gain in total surplus and is represented by area C+H.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
128. Refer to Figure 8-5. The total surplus with the tax is represented by area
a. C+H.
b. A+B+C.
c. D+H+F.
d. A+B+D+F.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
129. Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area
a. A+B+D+F.
b. A+B+C.
c. D+H+F.
d. C+H.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss\
Figure 8-6
130. Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are
a. $16 and 300.
b. $10 and 600.
c. $10 and 300.
d. $6 and 300.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
131. Refer to Figure 8-6. Without a tax, consumer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANSWER: d
POINTS: 1
132. Refer to Figure 8-6. Without a tax, producer surplus in this market is a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANSWER: b
POINTS: 1
133. Refer to Figure 8-6. Without a tax, total surplus in this market is
a. $3,000.
b. $4,800.
c. $6,000.
d. $7,200.
ANSWER: c
POINTS: 1
134. Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is
a. $4.
b. $6.
c. $10.
d. $16.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
135. Refer to Figure 8-6. When the tax is imposed in this market, buyers effectively pay what
amount of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
136. Refer to Figure 8-6. When the tax is imposed in this market, sellers effectively pay what
amount of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
137. Refer to Figure 8-6. When the tax is imposed in this market, the price sellers effectively
receive is
a. $4.
b. $6.
c. $10.
d. $16.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
138. Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
ANSWER: b
POINTS: 1
139. Refer to Figure 8-6. When the tax is imposed in this market, producer surplus is
a. $450.
b. $600.
c. $900.
d. $1,500.
ANSWER: b
POINTS: 1
140. Refer to Figure 8-6. When the tax is placed on this good, the quantity sold
a. is 600, and buyers effectively pay $10.
b. is 300, and buyers effectively pay $10.
c. is 600, and buyers effectively pay $16.
d. is 300, and buyers effectively pay $16.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
141. Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
a. $6.
b. $8.
c. $10.
d. $12.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
143. Refer to Figure 8-6. Total surplus with the tax in place is
a. $1,500.
b. $3,600.
c. $4,500.
d. $6,000.
ANSWER: c
POINTS: 1
144. Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this
market?
a. Consumer surplus falls by $3,600.
b. Consumer surplus falls by $2,700.
c. Consumer surplus falls by $1,800.
d. Consumer surplus falls by $900.
ANSWER: b
POINTS: 1
145. Refer to Figure 8-6. What happens to producer surplus when the tax is imposed in this
market?
a. Producer surplus falls by $600.
b. Producer surplus falls by $900.
c. Producer surplus falls by $1,800.
d. Producer surplus falls by $2,100.
ANSWER: c
POINTS: 1
146. Refer to Figure 8-6. What happens to total surplus in this market when the tax is imposed?
a. Total surplus increases by $1,500.
b. Total surplus increases by $3,000.
c. Total surplus decreases by $1,500.
d. Total surplus decreases by $,3000.
ANSWER: c
POINTS: 1
147. Refer to Figure 8-6. The tax results in a deadweight loss that amounts to
a. $600.
b. $900.
c. $1,500.
d. $1,800.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-7
148. Refer to Figure 8-7. Before the tax is imposed, the equilibrium price is
a. $32, and the equilibrium quantity is 15.
b. $24, and the equilibrium quantity is 15.
c. $24, and the equilibrium quantity is 25.
d. $16, and the equilibrium quantity is 15.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
149. Refer to Figure 8-7. As a result of the tax, buyers effectively pay
a. $32 for each unit of the good, and sellers effectively receive $24 for each unit of the good.
b. $32 for each unit of the good, and sellers effectively receive $16 for each unit of the good.
c. $24 for each unit of the good, and sellers effectively receive $16 for each unit of the good.
d. $28 for each unit of the good, and sellers effectively receive $20 for each unit of the good.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
150. Refer to Figure 8-7. Suppose a 20th unit of the good were sold by a seller to a buyer. Which
of the following statements is correct?
a. For the 20th unit, the difference between the buyer’s value and the seller’s cost is less than
the tax per unit.
b. For the 20th unit, the difference between the buyer’s value and the seller’s cost is greater
than the tax per unit.
c. For the 20th unit, the difference between the buyer’s value and the seller’s cost is equal to the
tax per unit.
d. It makes sense for the buyer to buy and for the seller to sell the 20th unit, with or without the
tax in place.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
151. Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?
a. For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear
one-half of the tax burden.
b. For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear
two-thirds of the tax burden.
c. For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers
bear three-fourths of the tax burden.
d. For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers
bear one-fourth of the tax burden.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
152. Refer to Figure 8-7. Which of the following statements is correct?

a. Total surplus before the tax is imposed is $500.
b. After the tax is imposed, consumer surplus is 45 percent of its pre-tax value.
c. After the tax is imposed, producer surplus is 45 percent of its pre-tax value.
ANSWER: a
POINTS: 1
NOTES: r

a. Total surplus before the tax is imposed is $180.
b. After the tax is imposed, consumer surplus is 25 percent of its pre-tax value.
c. After the tax is imposed, producer surplus is 36 percent of its pre-tax value.
ANSWER: c
POINTS: 1
NOTES: r
154. Refer to Figure 8-7. As a result of the tax,

a. consumer surplus decreases from $200 to $80.
b. producer surplus decreases from $200 to $145.
c. the market experiences a deadweight loss of $80.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
155. Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by
a. $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60.
b. $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60.
c. $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80.
d. $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r

a. The loss of producer surplus that is associated with some sellers dropping out of the market
as a result of the tax is $60.
b. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax
is imposed is $120.
c. The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused
by this tax.
d. This tax produces $320 in tax revenue for the government.
ANSWER: b
POINTS: 1
NOTES: r
157. Refer to Figure 8-7. The deadweight loss associated with this tax amounts to
a. $80, and this figure represents the amount by which tax revenue to the government exceeds
the combined loss of producer and consumer surpluses.
b. $80, and this figure represents the surplus that is lost because the tax discourages mutually
advantageous trades between buyers and sellers.
c. $60, and this figure represents the amount by which tax revenue to the government exceeds
the combined loss of producer and consumer surpluses.
d. $60, and this figure represents the surplus that is lost because the tax discourages mutually
advantageous trades between buyers and sellers.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
158. Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area
a. A.
b. B+C.
c. A+B+C.
d. A+B+C+D+F.
ANSWER: b
POINTS: 1
159. Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area
a. A.
b. B+C.
c. A+B+C.
d. A+B+D+J+K.
ANSWER: a
POINTS: 1
160. Refer to Figure 8-8. The tax causes producer surplus to decrease by the area
a. D+F.
b. D+F+G.
c. D+F+J.
d. D+F+G+H.
ANSWER: a
POINTS: 1
161. Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area
a. D+F+G+H+J.
b. D+F+G+H.
c. D+F+J.
d. J.
ANSWER: d
POINTS: 1
162. Refer to Figure 8-8. The government collects tax revenue that is the area
a. L.
b. B+D.
c. C+F.
d. F+G+L.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
163. Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax
revenue is the area
a. C.
b. F.
c. G.
d. C+F.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
164. Refer to Figure 8-8. The deadweight loss of the tax is the area
a. B+D.
b. C+F.
c. A+C+F+J.
d. B+C+D+F.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
165. Refer to Figure 8-8. One effect of the tax is to

a. reduce consumer surplus from $180 to $72.
b. reduce producer surplus from $96 to $24.
c. create a deadweight loss of $72.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
166. Refer to Figure 8-8. One effect of the tax is to

a. reduce consumer surplus by $108.
b. reduce producer surplus by $72.
c. create a deadweight loss of $60.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's
opportunity cost of cleaning Erin’s house is $70 per week.
167. Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin’s consumer surplus is
a. $80.
b. $30.
c. $20.
d. $10.
ANSWER: d
POINTS: 1
NOTES: r
168. Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto’s producer surplus is
a. $80.
b. $30.
c. $20.
d. $10.
ANSWER: c
POINTS: 1
NOTES: r
169. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 when she hires someone to
clean her house for a week. Which of the following is correct?
a. Erin will now clean her own house.
b. Ernesto will continue to clean Erin’s house, but his producer surplus will decline.
c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will
increase.
d. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
170. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $5 when she hires someone to
clean her house. Which of the following is true?
a. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
b. Ernesto will continue to clean Erin's house, and his producer surplus will increase.
c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will
decrease.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
Scenario 8-2
Roland mows Karla's lawn for $25. Roland’s opportunity cost of mowing Karla’s lawn is $20,
and Karla's willingness to pay Roland to mow her lawn is $28.
171. Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla’s consumer surplus is
a. $3.
b. $5.
c. $8.
d. $25.
ANSWER: a
POINTS: 1
NOTES: r
172. Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Roland’s producer surplus is
a. $2.
b. $3.
c. $5.
d. $25.
ANSWER: c
POINTS: 1
NOTES: r
173. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a
lawn. Which of the following results is most likely?
a. Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his
interest to mow Karla’s lawn.
b. Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer.
c. Roland is willing to mow Karla’s lawn, but Karla will decide to mow her own lawn.
d. Roland and Karla still can engage in a mutually-agreeable trade.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
174. Refer to Scenario 8-2. Assume Roland is required to pay a tax of $10 each time he mows a
lawn. Which of the following results is most likely?
a. Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his
interest to mow Karla’s lawn.
b. Karla still is willing to pay Roland to mow her lawn, but Roland will decline her offer.
c. Roland still is willing to mow Karla’s lawn, but Karla will decide to mow her own lawn.
d. Roland and Karla still can engage in a mutually-agreeable trade.
ANSWER: a
POINTS: 1
TOPICS: DISC: TAxes
Deadweight Loss
NOTES: r
175. Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of
the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450
and decreases producer surplus by $300. The deadweight loss from the tax is
a. $250.
b. $500.
c. $750.
d. $1,000.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
176. Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of
the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by
$3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is
a. $200.
b. $400.
c. $600.
d. $1,200.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
177. Suppose a tax of $3 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 $3,900 and decreases producer surplus by $3,000. The tax generates tax
revenue of $6,000. The tax decreased the equilibrium quantity of the good from
a. 2,000 to 1,500.
b. 2,400 to 2,000.
c. 2,600 to 2,000.
d. 3,000 to 2,400.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
178. Suppose a tax of $5 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 and decreases producer surplus by $15,000. The
deadweight loss of the tax is $2,500. The tax decreased the equilibrium quantity of the good from
a. 6,500 to 5,500.
b. 5,500 to 4,500.
c. 5,000 to 3,000.
d. 6,000 to 4,000.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
179. A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer
surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium
quantity of potato chips by 120 bags per day. The tax
a. decreases consumer surplus by $645 per day.
b. decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
c. decreases total surplus from $3,000 to $1,800 per day.
d. creates a deadweight loss of $15 per day.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
180. Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical
upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As
a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and
the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is
a. $60.
b. $120.
c. $160.
d. $200.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
181. Suppose a tax of $3 is imposed on each new garden hose that is sold, resulting in a deadweight
loss of $22,500. The supply curve is a typical upward-sloping straight line, and the demand curve
is a typical downward-sloping straight line. Before the tax was imposed, the equilibrium quantity
of garden hoses was 100,000. We can conclude that the equilibrium quantity of garden hoses
after the tax is imposed is
a. 75,000.
b. 85,000.
c. 90,000.
d. 95,000.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: n
182. Tom walks Bethany’s dog once a day for $50 per week. Bethany values this service at $60 per
week, while the opportunity cost of Tom’s time is $30 per week. The government places a tax of
$35 per week on dog walkers. Before the tax, what is the total surplus?
a. $60
b. $50
c. $30
d. $25
ANSWER: c
POINTS: 1
NOTES: r
$35 per week on dog walkers. After the tax, what is the loss in total surplus?
a. $50
b. $30
c. $25
d. $0
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
$35 per week on dog walkers. After the tax, what is the total surplus?
a. $50
b. $30
c. $25
d. $0
ANSWER: d
POINTS: 1
NOTES: r
185. Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values
this service at $100 per hour, while the opportunity cost of Diana’s time is $75 per hour. The
government places a tax of $10 per hour on personal trainers. Before the tax, what is the total
surplus?
a. $25
b. $20
c. $5
d. $0
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
186. Kate is a personal trainer whose client William pays $80 per hour-long session. William values
this service at $100 per hour, while the opportunity cost of Kate’s time is $75 per hour. The
government places a tax of $10 per hour on personal trainers. After the tax, what is likely to
happen in the market for personal training?
a. Kate and William will agree to a new price somewhere between $85 and $100.
b. Kate and William will agree to a new price somewhere between $70 and $110.
c. Kate will no longer offer personal training services to William because she must charge more
than $100 in order to cover her opportunity costs and pay the tax.
d. The price will remain at $80, and Kate will pay the $10 tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
187. A tax
a. lowers the price buyers pay and raises the price sellers receive.
b. raises the price buyers pay and lowers the price sellers receive.
c. places a wedge between the price buyers pay and the price sellers receive.
d. Both b) and c) are correct.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
188. Suppose Rebecca needs a dog sitter so that she can travel to her sister’s wedding. Rebecca
values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as
she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government
imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?
a. the maximum value that Rebecca would pay for dog sitting
b. the $30 tax
c. the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for
Rebecca
d. the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one
who would pay the tax
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total
of
a. $30.
b. $25.
c. $10.
d. $5.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total
of
a. $50.
b. $40.
c. $20.
d. $10.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-9
The vertical distance between points A and C represents a tax in the market.
191. Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is
a. P=$800 and Q=20.
b. P=$600 and Q=20.
c. P=$300 and Q=20.
d. P=$600 and Q=40.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
192. Refer to Figure 8-9. The imposition of the tax causes the quantity sold to
a. increase by 20 units.
b. increase by 500 units.
c. decrease by 20 units.
d. decrease by 500 units.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
193. Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by
a. $20.
b. $200.
c. $300.
d. $500.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
194. Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to
a. increase from $600 to $800.
b. increase from $300 to $800.
c. decrease from $600 to $300.
d. remain unchanged at $600.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
195. Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease
by
a. $20.
b. $200.
c. $300.
d. $500.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
196. Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to
a. increase from $600 to $800.
b. decrease from $800 to $300.
c. decrease from $600 to $300.
d. remain unchanged at $600.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
a. $20.
b. $200.
c. $300.
d. $500.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
a. $20.
b. $200.
c. $300.
d. $500.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
a. $20.
b. $200.
c. $300.
d. $500.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
200. Refer to Figure 8-9. The amount of tax revenue received by the government is
a. $4,000.
b. $6,000.
c. $10,000.
d. $24,000.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
201. Refer to Figure 8-9. The consumer surplus without the tax is
a. $2,000.
b. $5,000.
c. $8,000.
d. $16,000.
ANSWER: c
POINTS: 1
202. Refer to Figure 8-9. The consumer surplus with the tax is
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
ANSWER: a
POINTS: 1
203. Refer to Figure 8-9. The loss of consumer surplus as a result of the tax is
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
ANSWER: c
POINTS: 1
204. Refer to Figure 8-9. The producer surplus without the tax is
a. $3,000.
b. $8,000.
c. $12,000.
d. $24,000.
ANSWER: c
POINTS: 1
205. Refer to Figure 8-9. The producer surplus with the tax is
a. $3,000.
b. $6,000.
c. $9,000.
d. $12,000.
ANSWER: a
POINTS: 1
206. Refer to Figure 8-9. The loss of producer surplus as a result of the tax is
a. $3,000.
b. $6,000.
c. $9,000.
d. $12,000.
ANSWER: c
POINTS: 1
207. Refer to Figure 8-9. The total surplus without the tax is
a. $8,000.
b. $12,000.
c. $20,000.
d. $40,000.
ANSWER: c
POINTS: 1
208. Refer to Figure 8-9. The total surplus with the tax is
a. $2,000.
b. $3,000.
c. $15,000.
d. $20,000.
ANSWER: c
POINTS: 1
209. Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is
a. $4,000.
b. $5,000.
c. $6,000.
d. $10,000.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-10
210. 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
a. P0.
b. P2.
c. P5.
d. P8.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
the market after the tax to Q2. The price that sellers receive is
a. P0.
b. P2.
c. P5.
d. P8.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
the market after the tax to Q2. The size of the tax is
a. P0-P2.
b. P2-P8.
c. P2-P5.
d. P5-P8.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
the market after the tax to Q2. The tax revenue is
a. (P0-P2) x Q2.
b. (P2-P8) x Q2.
c. (P2-P5) x Q5.
d. (P5-P8) x Q5.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
the market after the tax to Q2. Without the tax, the consumer surplus is
a. (P0-P2) x Q2.
b. 1/2 x (P0-P2) x Q2.
c. (P0-P5) x Q5.
d. 1/2 x (P0-P5) x Q5.
ANSWER: d
POINTS: 1
the market after the tax to Q2. With the tax, the consumer surplus is
a. (P0-P2) x Q2.
b. 1/2 x (P0-P2) x Q2.
c. (P0-P5) x Q5.
d. 1/2 x (P0-P5) x Q5.
ANSWER: b
POINTS: 1
the market after the tax to Q2. Without the tax, the producer surplus is
a. (P5-0) x Q5.
b. 1/2 x (P5-0) x Q5.
c. (P8-0) x Q2.
d. 1/2 x (P8-0) x Q2.
ANSWER: b
POINTS: 1
the market after the tax to Q2. With the tax, the producer surplus is
a. (P5-0) x Q5.
b. 1/2 x (P5-0) x Q5.
c. (P8-0) x Q2.
d. 1/2 x (P8-0) x Q2.
ANSWER: d
POINTS: 1
the market after the tax to Q2. Without the tax, the total surplus is
a. [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5].
b. [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2].
c. (P2-P8) x Q2.
d. 1/2 x (P2-P8) x (Q5-Q2).
ANSWER: a
POINTS: 1
the market after the tax to Q2. With the tax, the total surplus is
a. [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5].
b. [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2].
c. (P2-P8) x Q2.
d. 1/2 x (P2-P8) x (Q5-Q2).
ANSWER: b
POINTS: 1
the market after the tax to Q2. The deadweight loss of the tax is
a. [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5].
b. [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2].
c. (P2-P8) x Q2.
d. 1/2 x (P2-P8) x (Q5-Q2).
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-11
221. Refer to Figure 8-11. The size of the tax is represented by the
a. length of the line segment connecting points A and B.
b. length of the line segment connecting points A and C.
c. length of the line segment connecting points B and C.
d. area of the triangle bounded by the points A, B, and C.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
222. Refer to Figure 8-11. The length of the line segment connecting points A and B represents
a. the difference between the price paid by buyers after the tax is imposed and the price
received by sellers after the tax is imposed.
b. the size of the tax.
c. the “tax wedge.”
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
223. Refer to Figure 8-11. The deadweight loss of the tax is represented by the
a. length of the line segment connecting points A and B.
b. length of the line segment connecting points A and C.
c. length of the line segment connecting points B and C.
d. area of the triangle bounded by the points A, B, and C.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
224. Refer to Figure 8-11. The price labeled as P1 on the vertical axis represents the price
a. received by sellers before the tax is imposed.
b. received by sellers after the tax is imposed.
c. paid by buyers before the tax is imposed.
d. paid by buyers after the tax is imposed.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
225. Refer to Figure 8-11. The price labeled as P2 on the vertical axis represents the
a. difference between the price paid by buyers after the tax is imposed and the price paid by
buyers before the tax is imposed.
b. difference between the price received by sellers before the tax is imposed and the price
received by sellers after the tax is imposed.
c. price of the good before the tax is imposed.
d. price of the good after the tax is imposed.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
226. Refer to Figure 8-11. The price labeled as P3 on the vertical axis represents the price
a. received by sellers before the tax is imposed.
b. received by sellers after the tax is imposed.
c. paid by buyers before the tax is imposed.
d. paid by buyers after the tax is imposed.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
227. Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is
shown on the figure. However, we know that, when the tax is imposed,
a. the demand curve will shift.
b. the supply curve will shift.
c. either the demand curve or the supply curve will shift.
d. None of the above are correct; the tax causes neither the demand curve nor the supply curve
to shift.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
228. Refer to Figure 8-11. The tax revenue that the government collects equals
a. .
b. .
c. .
d. .
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
229. Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then the
deadweight loss of the tax is
a. $6.
b. $8.
c. $9.
d. $12.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
230. Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when
the tax is imposed,
a. consumer surplus decreases by $13.
b. producer surplus decreases by $13.
c. the deadweight loss amounts to $6.
d. the amount of the good that is sold remains unchanged.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
the tax is imposed,
a. the government collects $28 in tax revenue.
c. consumer surplus decreases by $11.
d. the deadweight loss amounts to $9.
ANSWER: c
POINTS: 1
the tax is imposed,
a. consumer surplus decreases by $11.
c. the deadweight loss amounts to $6.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Figure 8-12
233. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the
price paid by buyers to
a. decrease by $3.
b. increase by $2.
c. decrease by $1.
d. increase by $6.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
234. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the
price received by sellers to
a. decrease by $3.
b. increase by $2.
c. decrease by $1.
d. increase by $6.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
235. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of
the tax on buyers is
a. $1.
b. $2.
c. $3.
d. $4.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
236. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of
the tax on sellers is
a. $1.
b. $2.
c. $3.
d. $4.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
237. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax
revenue collected by the government is
a. $7.50.
b. $15.00.
c. $22.50.
d. $45.00.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
238. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of
deadweight loss resulting from this tax is
a. $7.50.
b. $15.00.
c. $22.50.
d. $45.00.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
239. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The loss of consumer
surplus resulting from this tax is
a. $35.
b. $45.
c. $70.
d. $80.
ANSWER: a
POINTS: 1
TOPICS: DISC: Welfare analysis Consumer Surplus
240. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The loss of producer
surplus resulting from this tax is
a. $5.50.
b. $17.50.
c. $22.50.
d. $45.00
ANSWER: b
POINTS: 1
Figure 8-13
241. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax
causes the price paid by buyers to
a. decrease by $5.
b. increase by $5.
c. increase by $3.
d. increase by $2.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
242. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax
causes the price received by sellers to
a. decrease by $5.
b. decrease by $3.
c. decrease by $2.
d. increase by $5.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
243. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-
unit burden of the tax on buyers is
a. $1.
b. $2.
c. $3.
d. $5.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
244. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-
unit burden of the tax on sellers is
a. $1.
b. $2.
c. $3.
d. $5.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
245. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The
amount of tax revenue collected by the government is
a. $120.
b. $80.
c. $50.
d. $30.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
amount of deadweight loss resulting from this tax is
a. $120.
b. $80.
c. $50.
d. $25.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
consumer surplus after this tax is
a. $80.
b. $40.
c. $30.
d. $10.
ANSWER: d
POINTS: 1
248. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss
of consumer surplus resulting from this tax is
a. $80.
b. $40.
c. $30.
d. $10.
ANSWER: c
POINTS: 1
producer surplus after this tax is
a. $60.
b. $45.
c. $30.
d. $15.
ANSWER: d
POINTS: 1
250. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss
of producer surplus resulting from this tax is
a. $60.
b. $45.
c. $30.
d. $15.
ANSWER: b
POINTS: 1
Multiple Choice – Section02: The Determinants of the Deadweight Loss
1. Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the
equilibrium quantity of bananas to shrink by the largest amount?
a. The response of buyers to a change in the price of bananas is strong, and the response of sellers
to a change in the price of bananas is weak.
b. The response of sellers to a change in the price of bananas is strong, and the response of buyers
to a change in the price of bananas is weak.
c. The response of buyers and sellers to a change in the price of bananas is strong.
d. The response of buyers and sellers to a change in the price of bananas is weak.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
2. Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the
equilibrium quantity of baseball bats to shrink by the smallest amount?
a. The response of buyers to a change in the price of baseball bats is strong, and the response of
sellers to a change in the price of baseball bats is weak.
b. The response of sellers to a change in the price of baseball bats is strong, and the response of
buyers to a change in the price of baseball bats is weak.
c. The response of buyers and sellers to a change in the price of baseball bats is strong.
d. The response of buyers and sellers to a change in the price of baseball bats is weak.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
3. The price elasticities of supply and demand affect

a. both the size of the deadweight loss from a tax and the tax incidence.
b. the size of the deadweight loss from a tax but not the tax incidence.
c. the tax incidence but not the size of the deadweight loss from a tax.
d. neither the size of the deadweight loss from a tax nor the tax incidence.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
4. The size of the deadweight loss generated from a tax is affected by the
a. elasticities of both supply and demand.
b. elasticity of demand only.
c. elasticity of supply only.
d. total revenue collected by the government.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
5. The size of a tax and the deadweight loss that results from the tax are
a. positively related.
b. negatively related.
c. independent of each other.
d. equal to each other.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
6. Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part
of the tax burden, when the
a. tax is placed on the sellers of the product.
b. tax is placed on the buyers of the product.
c. supply of the product is more elastic than the demand for the product.
d. demand for the product is more elastic than the supply of the product.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
7. Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part
of the tax burden, when the
a. tax is placed on the sellers of the product.
b. tax is placed on the buyers of the product.
c. supply of the product is more elastic than the demand for the product.
d. demand for the product is more elastic than the supply of the product.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
8. When a tax is imposed on a good for which the supply is relatively elastic and the demand is
relatively inelastic,
a. buyers of the good will bear most of the burden of the tax.
b. sellers of the good will bear most of the burden of the tax.
c. buyers and sellers will each bear 50 percent of the burden of the tax.
d. both equilibrium price and quantity will increase.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
9. When a tax is imposed on a good for which the demand is relatively elastic and the supply is
relatively inelastic,
a. buyers of the good will bear most of the burden of the tax.
b. sellers of the good will bear most of the burden of the tax.
c. buyers and sellers will each bear 50 percent of the burden of the tax.
d. the effective price paid by buyers will decrease as a result of the tax.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
10. When a tax is imposed on a good for which both demand and supply are very elastic,
a. sellers effectively pay the majority of the tax.
b. buyers effectively pay the majority of the tax.
c. the tax burden is equally divided between buyers and sellers.
d. None of the above is correct; further information would be required to determine how the
burden of the tax is distributed between buyers and sellers.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
11. Which of the following statements is correct regarding the imposition of a tax on gasoline?
a. The incidence of the tax depends upon whether the buyers or the sellers are required to remit
tax payments to the government.
b. The incidence of the tax depends upon the price elasticities of demand and supply.
c. The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers
are required to remit tax payments to the government.
d. The amount of tax revenue raised by the tax does not depend upon the amount of the tax per
unit.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
12. When a good is taxed, the burden of the tax

a. falls more heavily on the side of the market that is more elastic.
b. falls more heavily on the side of the market that is more inelastic.
c. falls more heavily on the side of the market that is closer to unit elastic.
d. is distributed independently of relative elasticities of supply and demand.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
13. The deadweight loss from a tax of $2 per unit will be smallest in a market with
a. inelastic supply and elastic demand.
b. inelastic supply and inelastic demand.
c. elastic supply and elastic demand.
d. elastic supply and inelastic demand.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
14. The deadweight loss from a tax of $x per unit will be smallest in a market
a. in which demand is elastic and supply is inelastic.
b. in which demand is inelastic and supply is elastic.
c. in which demand is inelastic and supply is inelastic.
d. None of the above are correct; we need to know the value of x in order to determine the
answer.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
15. The deadweight loss from a $3 tax will be largest in a market with
a. inelastic supply and elastic demand.
b. inelastic supply and inelastic demand.
c. elastic supply and elastic demand.
d. elastic supply and inelastic demand.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
16. Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other
things equal, the
a. smaller is the response of quantity supplied to the tax.
b. larger is the tax burden on sellers relative to the tax burden on buyers.
c. larger is the deadweight loss of the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
17. Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good,
other things equal,
a. the larger is the decrease in quantity demanded as a result of the tax.
b. the smaller is the tax burden on buyers relative to the tax burden on sellers.
c. the larger is the deadweight loss of the tax.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Table 8-1
Market Characteristic
A Demand is very elastic.
B Demand is very inelastic.
C Supply is very elastic.
D Supply is very inelastic.
18. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the
markets described in the table. Which of the markets will allow the government to minimize the
deadweight loss(es) from the tax?
a. market A only
b. markets A and C only
c. markets B and D only
d. market C only
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
19. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the
markets described in the table. Which of the markets will maximize the deadweight loss(es) from
the tax?
a. market B only
b. markets A and C only
c. markets B and D only
d. market D only
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-14
20. Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss
from a tax?
a. supply 1 and demand 1
b. supply 2 and demand 2
c. supply 1 and demand 2
d. supply 2 and demand 1
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
21. Refer to Figure 8-14. Which of the following combinations will maximize the deadweight loss
from a tax?
a. supply 1 and demand 1
b. supply 2 and demand 2
c. supply 1 and demand 2
d. supply 2 and demand 1
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss

a. Supply 1 is more elastic than supply 2.
b. Demand 2 is more elastic than demand 1.
c. Demand 1 is more elastic than supply 1.
ANSWER: b
POINTS: 1
TOPICS: DISC: Elasticity
Price Elasticity of Supply
23. Refer to Figure 8-14. Which of the following statements is not correct?
a. Supply 2 is more elastic than supply 1.
b. Demand 2 is more elastic than demand 1.
c. Supply 1 is more inelastic than supply 2.
d. Demand 2 is more inelastic than supply 2.
ANSWER: d
POINTS: 1
TOPICS: DISC: Elasticity
Price Elasticity of Supply
24. Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be
greater in the
a. first year after it is imposed than in the eighth year after it is imposed because demand and
supply will be more elastic in the first year than in the eighth year.
b. first year after it is imposed than in the eighth year after it is imposed because demand and
supply will be less elastic in the first year than in the eighth year.
c. eighth year after it is imposed than in the first year after it is imposed because demand and
supply will be more elastic in the first year than in the eighth year.
d. eighth year after it is imposed than in the first year after it is imposed because demand and
supply will be less elastic in the first year than in the eighth year.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
25. The demand for chicken wings is more elastic than the demand for razor blades. Suppose the
government levies an equivalent tax on chicken wings and razor blades. The deadweight loss
would be larger in the market for
a. chicken wings than in the market for razor blades because the quantity of chicken wings would
fall by more than the quantity of razor blades.
b. chicken wings than in the market for razor blades because the quantity of razor blades would
fall by more than the quantity of chicken wings.
c. razor blades than in the market for chicken wings because the quantity of chicken wings would
fall by more than the quantity of razor blades.
d. razor blades than in the market for chicken wings because the quantity of razor blades would
fall by more than the quantity of chicken wings.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
26. The deadweight loss from a tax

a. does not vary in amount when the price elasticity of demand changes.
b. does not vary in amount when the amount of the tax per unit changes.
c. is larger, the larger is the amount of the tax per unit.
d. is smaller, the larger is the amount of the tax per unit.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
27. Which of the following statements is correct regarding a tax on a good and the resulting
deadweight loss?
a. The greater are the price elasticities of supply and demand, the greater is the deadweight loss.
b. The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the
greater is the deadweight loss.
c. The smaller are the decreases in quantity demanded and quantity supplied, the greater the
deadweight loss.
d. The smaller is the wedge between the effective price to sellers and the effective price to
buyers, the greater is the deadweight loss.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
28. The amount of deadweight loss that results from a tax of a given size is determined by
a. whether the tax is levied on buyers or sellers.
b. the number of buyers in the market relative to the number of sellers.
c. the price elasticities of demand and supply.
d. the ratio of the tax per unit to the effective price received by sellers.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
29. The amount of deadweight loss from a tax depends upon the
a. price elasticity of demand.
b. price elasticity of supply.
c. amount of the tax per unit.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
30. Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand
curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in
the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper 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?
a. After the tax is imposed, the equilibrium quantity of diapers is 900 per month.
b. The demand for diapers is more elastic than the supply of diapers.
c. The deadweight loss of the tax is $12.50.
d. The tax causes a decrease in consumer surplus of $380.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
31. Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand
curve for cigars is a typical, downward-sloping straight line. 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?
a. The demand for cigars is less elastic than the supply of cigars.
b. The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of
$97.50.
c. The deadweight loss of the tax is $12.50.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
32. Suppose that policymakers are considering placing a tax on either of two markets. In Market A,
the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium
quantity very much. In Market B, the same tax will have only a small effect on the price
consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held
constant. In which market will the tax have a larger deadweight loss?
a. Market A
b. Market B
c. The deadweight loss will be the same in both markets.
d. There is not enough information to answer the question.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
33. Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and
supply for the good, the
a. smaller the deadweight loss from the tax.
b. greater the deadweight loss from the tax.
c. more efficient is the tax.
d. more equitable is the distribution of the tax burden between buyers and sellers.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
34. Consider a good to which a per-unit tax applies. The size of the deadweight that results from the
tax is smaller, the
a. larger is the price elasticity of demand.
b. smaller is the price elasticity of supply.
c. larger is the amount of the tax.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
35. Consider a good to which a per-unit tax applies. The size of the deadweight that results from the
tax is smaller, the
a. less elastic is the demand for the good.
b. less elastic is the supply of the good.
c. smaller is the amount of the tax.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
36. Suppose the government places a per-unit tax on a good. The smaller the price elasticities of
demand and supply for the good, the
a. smaller the deadweight loss from the tax.
b. greater the deadweight loss from the tax.
c. less efficient is the tax.
d. more equitable is the distribution of the tax burden between buyers and sellers.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
37. Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is 100 thousand
gallons per day with no tax on milk. Starting from this initial situation, which of the following
scenarios would result in the smallest deadweight loss?
a. The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is 0.7, and
the milk tax amounts to $0.40 per gallon.
b. The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.5, and
c. The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.7, and
d. The price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is 0.5, and
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
38. Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10
million gallons per day with no tax on gasoline. Starting from this initial situation, which of the
following scenarios would result in the largest deadweight loss?
a. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is
0.6; and the gasoline tax amounts to $0.20 per gallon.
b. The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is
c. The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is
d. There is insufficient information to make this determination.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
39. Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12
million gallons per day with no tax on gasoline. Starting from this initial situation, which of the
following scenarios would result in the largest deadweight loss?
a. A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2
percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline
amounts to $0.40 per gallon.
b. A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2
c. A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1
d. There is insufficient information to make this determination.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
40. Other things equal, the deadweight loss of a tax

a. decreases as the size of the tax increases.
b. increases as the size of the tax increases, but the increase in the deadweight loss is less rapid
than the increase in the size of the tax.
c. increases as the size of the tax increases, and the increase in the deadweight loss is more rapid
than the increase in the size of the tax.
d. increases as the price elasticities of demand and/or supply increase, but the deadweight loss
does not change as the size of the tax increases.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
41. Economists generally agree that the most important tax in the U.S. economy is the
a. income tax.
b. tax on labor.
c. inheritance or death tax.
d. tax on corporate profits.
ANSWER: b
POINTS: 1
42. Economists generally agree that the most important tax in the U.S. economy is the
a. investment tax.
b. sales tax.
c. property tax.
d. labor tax.
ANSWER: d
POINTS: 1
43. Which of the following is a tax on labor?

a. Medicare tax
b. Social Security tax
c. federal income tax
d. All of the above are labor taxes.
ANSWER: d
POINTS: 1
44. Which of the following is a tax on labor?

a. Medicare tax
b. inheritance tax
c. sales tax
d. All of the above are labor taxes.
ANSWER: a
POINTS: 1
TOPICS: DISC: Thinking like an Economist Overview of US Economy
45. Labor taxes may distort labor markets greatly if

a. labor supply is highly inelastic.
b. many workers choose to work 40 hours per week regardless of their earnings.
c. the number of hours many part-time workers want to work is very sensitive to the wage rate.
d. “underground” workers do not respond to changes in the wages of legal jobs because they
prefer not to pay taxes.
ANSWER: c
POINTS: 1
TOPICS: DISC: Labor Economics Labor Market Equilibrium
46. Economists disagree on whether labor taxes cause small or large deadweight losses. This
disagreement arises primarily because economists hold different views about
a. the size of labor taxes.
b. the importance of labor taxes imposed by the federal government relative to the importance of
labor taxes imposed by the various states.
c. the elasticity of labor supply.
d. the elasticity of labor demand.
ANSWER: c
POINTS: 1
TOPICS: DISC: Labor Economics Labor Supply
47. Taxes on labor have the effect of encouraging

a. workers to work more hours.
b. the elderly to postpone retirement.
c. second earners within a family to take a job.
d. unscrupulous people to take part in the underground economy.
ANSWER: d
POINTS: 1
TOPICS: DISC: Labor Economics
48. Concerning the labor market and taxes on labor, economists disagree about
a. the size of the tax on labor.
b. the size of the deadweight loss of the tax on labor.
c. whether or not a tax on labor places a wedge between the wage that firms pay and the wage
that workers receive.
ANSWER: b
POINTS: 1
TOPICS: DISc: Labor Economics
49. The Social Security tax is a tax on

a. capital.
b. labor.
c. land.
d. savings.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
50. If the labor supply curve is nearly vertical, a tax on labor

a. has a large deadweight loss.
b. raises a small amount of tax revenue.
c. has little impact on the amount of work that workers are willing to do.
d. results in a large tax burden on the firms that hire labor.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
51. If the labor supply curve is very elastic, a tax on labor

a. has a large deadweight loss.
b. raises enough tax revenue to offset the loss in welfare.
c. has a relatively small impact on the number of hours that workers choose to work.
d. results in a large tax burden on the firms that hire labor.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
52. The marginal tax rate on labor income for many workers in the United States is almost
a. 30 percent.
b. 40 percent.
c. 50 percent.
d. 65 percent.
ANSWER: b
POINTS: 1
TOPICS: DISC: Thinking Like an Economist overview of US Economy
53. The less freedom young mothers have to work outside the home, the
a. more elastic the supply of labor will be.
b. less elastic the supply of labor will be.
c. more horizontal the labor supply curve will be.
d. larger is the decrease in employment that will result from a tax on labor.
ANSWER: b
POINTS: 1
NOTES: r
54. The less freedom people are given to choose the date of their retirement, the
a. more elastic is the supply of labor.
b. less elastic is the supply of labor.
c. flatter is the labor supply curve.
d. smaller is the decrease in employment that will result from a tax on labor.
ANSWER: b
POINTS: 1
55. Taxes on labor encourage all of the following except

a. older workers to take early retirement from the labor force.
b. mothers to stay at home rather than work in the labor force.
c. workers to work overtime.
d. people to be paid “under the table.”
ANSWER: c
POINTS: 1
56. Taxes on labor encourage which of the following?

a. labor demand to be more inelastic
b. mothers to stay at home rather than work in the labor force
c. workers to work overtime
d. fathers to take on second jobs
ANSWER: b
POINTS: 1
57. As more people become self-employed, which allows them to determine how many hours they
work per week, we would expect the deadweight loss from the Social Security tax to
a. increase, and the revenue generated from the tax to increase.
b. increase, and the revenue generated from the tax to decrease.
c. decrease, and the revenue generated from the tax to increase.
d. decrease, and the revenue generated from the tax to decrease.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
58. Which of the following is not correct?

a. Economists who argue that labor taxes are highly distorting believe that labor supply is fairly
elastic.
b. Economists who argue that labor taxes are not highly distorting believe that labor supply is fairly
inelastic.
c. Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the
date they retire as an example.
d. Economists who argue that labor supply is fairly elastic cite workers who adjust the hours of
overtime that they work as an example.
ANSWER: c
POINTS: 1
Figure 8-15
59. Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In
comparison to Panel (a), Panel (b) illustrates which of the following statements?
a. When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand
is relatively elastic.
b. When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is
relatively inelastic.
c. When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is
relatively elastic.
d. When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
comparison to Panel (b), Panel (a) illustrates which of the following statements?
relatively elastic.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-16
comparison to Panel (b), Panel (a) illustrates which of the following statements?
relatively elastic.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
comparison to Panel (a), Panel (b) illustrates which of the following statements?
relatively elastic.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-17
63. Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets
represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the
market represented by
a. D1.
b. D2.
c. D3.
d. D4.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
represented by demand curves D1, D2, D3, and D4. The deadweight will be the largest in the
a. D1.
b. D2.
c. D3.
d. D4.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-18
represented by supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the
a. S1.
b. S2.
c. S3.
d. S4.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market
represented by
a. S1.
b. S2.
c. S3.
d. S4.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Multiple Choice – Section 03: Deadweight Loss and Tax Revenue as Taxes Vary
1. A decrease in the size of a tax is most likely to increase tax revenue in a market with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
2. An increase in the size of a tax is most likely to increase tax revenue in a market with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
3. If the size of a tax increases, tax revenue

a. increases.
b. decreases.
c. remains the same.
d. may increase, decrease, or remain the same.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
4. Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to
being a "large" tax. As a result, it is likely that
a. tax revenue increases, and the deadweight loss increases.
b. tax revenue increases, and the deadweight loss decreases.
c. tax revenue decreases, and the deadweight loss increases.
d. tax revenue decreases, and the deadweight loss decreases.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
NOTES: r
Figure 8-19
The vertical distance between points A and B represents the original tax.
5. Refer to Figure 8-19. If the government changed the per-unit tax from $5.00 to $2.50, then the
price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity
sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would
a. increase government revenue and increase the deadweight loss from the tax.
b. increase government revenue and decrease the deadweight loss from the tax.
c. decrease government revenue and increase the deadweight loss from the tax.
d. decrease government revenue and decrease the deadweight loss from the tax.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
6. Refer to Figure 8-19. If the government changed the per-unit tax from $5.00 to $7.50, then the
price paid by buyers would be $10.50, the price received by sellers would be $3, and the quantity
sold in the market would be 0.5 units. Compared to the original tax rate, this higher tax rate would
a. increase government revenue and increase the deadweight loss from the tax.
b. increase government revenue and decrease the deadweight loss from the tax.
c. decrease government revenue and increase the deadweight loss from the tax.
d. decrease government revenue and decrease the deadweight loss from the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
7. Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose
the government is deciding whether to lower the tax to CD or raise it to FG. Which of the
following statements is correct?
a. Compared to the original tax, the larger tax will decrease both tax revenue and deadweight loss.
b. Compared to the original tax, the smaller tax will increase both tax revenue and deadweight loss.
c. Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight
loss.
d. Both a and b are correct.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
8. Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose
the government is deciding whether to lower the tax to CD or raise it to FG. Which of the
following statements is not correct?
a. Compared to the original tax, the larger tax will increase tax revenue.
b. Compared to the original tax, the smaller tax will decrease deadweight loss.
c. Compared to the original tax, the smaller tax will decrease tax revenue.
d. Compared to the original tax, the larger tax will increase deadweight loss.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
9. As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the
a. tax revenue increases at first, but it eventually peaks and then decreases.
b. deadweight loss increases at first, but it eventually peaks and then decreases.
c. tax revenue always increases, and the deadweight loss always increases.
d. tax revenue always decreases, and the deadweight loss always increases.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
10. Which of the following ideas is the most plausible?

a. Tax revenue is more likely to increase when a low tax rate is increased than when a high tax
rate is increased.
b. Tax revenue is less likely to increase when a low tax rate is increased than when a high tax
rate is increased.
c. Tax revenue is likely to increase by the same amount when a low tax rate is increased and
when a high tax rate is increased.
d. Decreasing a tax rate can never increase tax revenue.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
11. Which of the following statements is true for markets in which the demand curve slopes
downward and the supply curve slopes upward?
a. As the size of the tax increases, tax revenue continually rises and deadweight loss continually
falls.
b. As the size of the tax increases, tax revenue and deadweight loss rise initially, but both
eventually begin to fall.
c. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall;
deadweight loss continually rises.
d. As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall;
deadweight loss falls initially, but eventually it begins to rise.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
12. In which of the following cases is it most likely that an increase in the size of a tax will decrease
tax revenue?
a. The price elasticity of demand is small, and the price elasticity of supply is large.
b. The price elasticity of demand is large, and the price elasticity of supply is small.
c. The price elasticity of demand and the price elasticity of supply are both small.
d. The price elasticity of demand and the price elasticity of supply are both large.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
13. Which of the following statements correctly describes the relationship between the size of the
deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a
medium tax and finally to a large tax?
a. Both the size of the deadweight loss and tax revenue increase.
b. The size of the deadweight loss increases, but the tax revenue decreases.
c. The size of the deadweight loss increases, but the tax revenue first increases, then decreases.
d. Both the size of the deadweight loss and tax revenue decrease.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
14. Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that
tax
a. increases by 20 percent.
b. increases by more than 20 percent.
c. increases but by less than 20 percent.
d. decreases by 20 percent.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
15. If the tax on a good is doubled, the deadweight loss of the tax
a. increases by 50 percent.
b. doubles.
c. triples.
d. quadruples.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
16. If the tax on a good is tripled, the deadweight loss of the tax
a. remains constant.
b. triples.
c. increases by a factor of 9.
d. increases by a factor of 12.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
17. If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from
the tax
a. remains constant.
b. increases by a factor of 4.
c. increases by a factor of 9.
d. increases by a factor of 16.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
18. If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax
increases by a factor of
a. 5.
b. 9.
c. 16.
d. 24.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
19. Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is
increased to $2.50 per unit, the deadweight loss from the new tax would be
a. $200.
b. $250.
c. $500.
d. $2,500.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
20. Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is
increased to $0.25 per unit, the deadweight loss from the new tax would be
a. $200.
b. $250.
c. $475.
d. $625.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
21. In which of the following instances would the deadweight loss of the tax on airline tickets increase
by a factor of 9?
a. The tax on airline tickets increases from $20 per ticket to $60 per ticket.
b. The tax on airline tickets increases from $20 per ticket to $90 per ticket.
c. The tax on airline tickets increases from $15 per ticket to $60 per ticket.
d. The tax on airline tickets increases from $15 per ticket to $135 per ticket.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
22. In which of the following instances would the deadweight loss of the tax on cartons of cigarettes
increase by a factor of 9?
a. The tax on cartons of cigarettes increases from $10 to $11.11.
b. The tax on cartons of cigarettes increases from $10 to $20.
c. The tax on cartons of cigarettes increases from $10 to $30.
d. The tax on cartons of cigarettes increases from $10 to $90.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
23. Which of the following events is consistent with an increase in the deadweight loss of the gasoline
tax from $30 million to $120 million?
a. The tax on gasoline increases from $0.30 per gallon to $0.45 per gallon.
b. The tax on gasoline increases from $0.30 per gallon to $0.60 per gallon.
c. The tax on gasoline increases from $0.25 per gallon to $0.45 per gallon.
d. The tax on gasoline increases from $0.25 per gallon to $1.00 per gallon.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
24. 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
a. base of the triangle that represents the deadweight loss quadruples.
b. height of the triangle that represents the deadweight loss doubles.
c. deadweight loss of the tax doubles.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
doubled, the
a. base of the triangle that represents the deadweight loss doubles.
b. height of the triangle that represents the deadweight loss doubles.
c. deadweight loss of the tax quadruples.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
tripled, the
a. base of the triangle that represents the deadweight loss triples.
b. height of the triangle that represents the deadweight loss triples.
c. deadweight loss of the tax increases by a factor of nine.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
27. Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,
a. tax revenue necessarily decreases.
b. the deadweight loss of the tax necessarily decreases.
c. the demand curve for gasoline necessarily becomes steeper.
d. the supply curve for gasoline necessarily becomes flatter.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: r
28. 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?
a. The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss
than the $0.30 tax.
b. The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss
than the $0.10 tax.
c. It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it
creates a larger deadweight loss than the $0.10 tax.
d. It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it
creates a larger deadweight loss than the $0.30 tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
29. 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
a. $200.
b. $250.
c. $475.
d. $625.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
30. The higher a country's tax rates, the more likely that country will be
a. at the top of the Laffer curve.
b. on the positively sloped part of the Laffer curve.
c. on the negatively sloped part of the Laffer curve.
d. experiencing small deadweight losses.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
31. 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
a. a U.
b. an upside-down U.
c. a horizontal straight line.
d. an upward-sloping line or curve.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
32. 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
a. a U.
b. an upside-down U.
c. a horizontal straight line.
d. an upward-sloping curve.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
33. Which of the following events always would increase the size of the deadweight loss that arises
from the tax on gasoline?
a. The demand for gasoline becomes more inelastic.
b. The slope of the supply curve for gasoline becomes steeper.
c. The amount of the tax per gallon of gasoline increases.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
34. Supply-side economics is a term associated with the views of

a. Ronald Reagan and Arthur Laffer.
b. Karl Marx.
c. Bill Clinton and Greg Mankiw.
d. Milton Friedman.
ANSWER: a
POINTS: 1
35. The Laffer curve relates

a. the tax rate to tax revenue raised by the tax.
b. the tax rate to the deadweight loss of the tax.
c. the price elasticity of supply to the deadweight loss of the tax.
d. government welfare payments to the birth rate.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
36. Ronald Reagan believed that reducing income tax rates would
a. do little, if anything, to encourage hard work.
b. result in large increases in deadweight losses.
c. raise economic well-being and perhaps even tax revenue.
d. lower economic well-being, even though tax revenue could possibly increase.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
37. 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
a. California economics.
b. welfare economics.
c. supply-side economics.
d. elasticity economics.
ANSWER: c
POINTS: 1
38. Which of the following scenarios is consistent with the Laffer curve?
a. The tax rate is 1 percent, and tax revenue is very low.
b. The tax rate is 1 percent, and tax revenue is very high.
c. The tax rate is 99 percent, and tax revenue is very high.
d. The tax rate is moderate (between very high and very low), and tax revenue is very low.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
NOTES: n
39. Which of the following scenarios is not consistent with the Laffer curve?
a. The tax rate is very low, and tax revenue is very low.
b. The tax rate is very high, and tax revenue is very low.
c. The tax rate is very high, and tax revenue is very high.
d. The tax rate is moderate (between very high and very low), and tax revenue is relatively high.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
40. When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will
a. decrease tax revenue and decrease the deadweight loss.
b. decrease tax revenue and increase the deadweight loss.
c. increase tax revenue and decrease the deadweight loss.
d. increase tax revenue and increase the deadweight loss.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
41. In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?
a. United States
b. Canada
c. Japan
d. Sweden
ANSWER: d
POINTS: 1
TOPICS: DISC: General
42. Which of the following ideas is the most plausible?

a. Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate.
b. Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.
c. Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate.
d. Reducing a tax rate can never increase tax revenue.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
43. Which of the following would likely have the smallest deadweight loss relative to the tax revenue?
a. a head tax (that is, a tax everyone must pay regardless of what one does or buys)
b. an income tax
c. a tax on compact discs
d. a tax on caviar
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-20
On the vertical axis of each graph, DWL is deadweight loss.
44. Refer to Figure 8-20. Which graph correctly illustrates the relationship between the size of a tax
and the size of the deadweight loss associated with the tax?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
45. If the tax on gasoline increases from $2 to $4 per gallon, the deadweight loss from the tax
increases by a factor of
a. one-half.
b. two.
c. four.
d. six.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
46. As the size of a tax rises, the deadweight loss

a. rises, and tax revenue first rises, then falls.
b. rises as does tax revenue.
c. falls, and tax revenue first rises, then falls.
d. falls as does tax revenue.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
47. Suppose the federal government doubles the gasoline tax. The deadweight loss associated with
the tax
a. also doubles.
b. triples.
c. quadruples.
d. rises by a factor of 8.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
48. The Laffer curve illustrates that

a. deadweight loss rises by the square of the increase in a tax.
b. deadweight loss rises exponentially as a tax increases.
c. tax revenue first rises, then falls as a tax increases.
d. Both a) and b) are correct.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
49. Which of the following statements is correct?

a. A decrease in the size of a tax always decreases the tax revenue raised by that tax.
b. A decrease in the size of a tax always decreases the deadweight loss of that tax.
c. Tax revenue decreases when there is a small decrease in the tax rate and the economy is on
the downward- sloping part of the Laffer curve.
d. An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the
economy is on the upward-sloping part of the Laffer curve.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-21
largest deadweight loss from the tax would occur in a market where demand is represented by
a. Demand 1, and supply is represented by Supply 1.
b. Demand 1, and supply is represented by Supply 2.
c. Demand 2, and supply is represented by Supply 1.
d. Demand 2, and supply is represented by Supply 2.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
smallest deadweight loss from the tax would occur in a market where demand is represented by
a. Demand 1, and supply is represented by Supply 1.
b. Demand 1, and supply is represented by Supply 2.
c. Demand 2, and supply is represented by Supply 1.
d. Demand 2, and supply is represented by Supply 2.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
52. Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first
the government places a $3 per-unit tax on this good. Then the government decides to raise the
tax to $6 per unit. Compared to the original tax rate, the higher tax will
a. increase tax revenue and increase the deadweight loss from the tax.
b. not change tax revenue and increase the deadweight loss from the tax.
c. decrease tax revenue and increase the deadweight loss from the tax.
d. decrease tax revenue and decrease the deadweight loss from the tax.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
53. Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first
the government places a $3 per-unit tax on this good. Then the government decides to raise the
tax to $6 per unit. How would you characterize the decision to raise the tax rate from $3 to $6 per
unit? The decision is
a. a good one because it increases tax revenue while decreasing the deadweight loss from the
tax.
b. a bad one because it does not increase tax revenue yet increases the deadweight loss from the
tax.
c. a bad one because it decreases tax revenue while increasing the deadweight loss from the tax.
d. unclear because it increases tax revenue yet also increases the deadweight loss from the tax.
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-22
54. Refer to Figure 8-22. Suppose the government changed the per-unit tax on this good from
$3.00 to $1.50. Compared to the original tax rate, this lower tax rate would
b. increase tax revenue and decrease the deadweight loss from the tax.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
55. Refer to Figure 8-22. Suppose the government changed the per-unit tax from $3.00 to $4.50.
Compared to the original tax rate, this higher tax rate would
b. increase tax revenue and decrease the deadweight loss from the tax.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
56. Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good.
Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.
Which of the following statements is correct?
a. Compared to the original tax, the smaller tax will decrease both tax revenue and deadweight
loss.
b. Compared to the original tax, the larger tax will increase both tax revenue and deadweight loss.
c. Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight
loss.
d. Both a and b are correct.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Which of the following statements is not correct?
a. Compared to the original tax, the larger tax will decrease tax revenue.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Which of the following statements is not correct?
a. Compared to the original tax, the larger tax will decrease tax revenue.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue
raised by that tax.
59. Refer to Figure 8-23. The curve that is shown on the figure is called the
a. deadweight-loss curve.
b. tax-incidence curve.
c. Laffer curve.
d. Lorenz curve.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
60. Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax
rate will
a. increase the deadweight loss of the tax and increase tax revenue.
b. increase the deadweight loss of the tax and decrease tax revenue.
c. decrease the deadweight loss of the tax and increase tax revenue.
d. decrease the deadweight loss of the tax and decrease tax revenue.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
61. Refer to Figure 8-23. If the economy is at point A on the curve, then a decrease in the tax rate
will
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
62. Refer to Figure 8-23. If the economy is at point B on the curve, then an increase in the tax rate
will
ANSWER: b
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
63. Refer to Figure 8-23. If the economy is at point B on the curve, then a small decrease in the tax
rate will
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue
raised by that tax.
64. Refer to Figure 8-24. Tax revenue would

a. decrease if the economy began at point B and then the tax rate was decreased.
b. increase if the economy began at point F and then the tax rate was decreased.
c. decrease if the economy began at point C and then the tax rate was increased.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
NOTES: n
65. Refer to Figure 8-24. For an economy that is currently at point D on the curve, a decrease in
the tax rate would
a. decrease consumer surplus.
b. decrease producer surplus.
c. increase tax revenue.
d. increase the deadweight loss of the tax.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
66. In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez wrote that,
according to their analysis, the federal government’s tax revenue would be maximized if the
marginal income tax rate on individuals with the highest earnings were in or near the range of
a. 10 percent to 30 percent.
b. 30 percent to 50 percent.
c. 50 percent to 70 percent.
d. 70 percent to 90 percent.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
67. In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the
following:
a. Since World War II, higher tax rates on individuals with the highest incomes tend to be
associated with higher
rates of economic growth — not with lower rates of economic growth.
b. The average federal income tax rate on the top 1 percent of income-earners in the United
States more than doubled between 1970 and 2010.
c. A “reasonable” increase in the tax rate on top income earners is all that is needed to solve
long-term fiscal problems faced by the United States.
ANSWER: a
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
68. In 2012, in The Wall Street Journal, economists Edward Prescott and Lee Ohanian asserted that
a. in the United States, when the average worker earns $100 from additional work, he or she will
be able to consume an additional $85 worth of goods and services.
b. the typical American has always worked more hours per year than the typical Frenchman and
the typical German, despite vastly different tax rates in those countries.
c. raising tax rates from their 2012 levels would significantly reduce U.S. economic activity.
d. raising tax rates from their 2012 levels would significantly increase the federal government’s
tax revenue.
ANSWER: c
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
69. In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed
that, in order to promote faster economic growth, the government should
a. increase tax rates on individuals with high incomes, and leave tax rates on other individuals
unchanged.
b. equalize tax rates on all individuals, regardless of how much they earn.
c. decrease tax rates on income and increase tax rates on consumption.
d. increase the after-tax benefits to successful entrepreneurship and risk-taking.
ANSWER: d
POINTS: 1
TOPICS: DISC: Taxes
NOTES: n
Multiple Choice – Section 04: Conclusion
1. When the government imposes taxes on buyers or sellers of a good, society

a. loses some of the benefits of market efficiency.
b. gains efficiency but loses equality.
c. is better off because the government’s tax revenues exceed the deadweight loss.
d. moves from an elastic supply curve to an inelastic supply curve.
ANSWER: a
POINTS: 1
TOPICS: DISC: Welfare Analysis Efficiency
2. Taxes are costly to market participants because they

a. transfer resources from market participants to the government.
b. alter incentives.
c. distort market outcomes.
ANSWER: d
POINTS: 1
3. Taxes are of interest to

a. microeconomists because they consider how to balance equality and efficiency.
b. microeconomists because they consider how best to design a tax system.
c. macroeconomists because they consider how policymakers can use the tax system to stabilize
economic activity.
ANSWER: d
POINTS: 1
True/False and Short Answer

1. Total surplus is always equal to the sum of consumer surplus and producer surplus.
a. True
b. False
ANSWER: False
POINTS: 1
2. Total surplus in a market does not change when the government imposes a tax on that market
because the loss of consumer surplus and producer surplus is equal to the gain of government
revenue.
a. True
b. False
ANSWER: False
POINTS: 1
3. When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.
a. True
b. False
ANSWER: True
POINTS: 1
4. When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases.
a. True
b. False
ANSWER: False
POINTS: 1
5. When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases.
a. True
b. False
ANSWER: False
POINTS: 1
6. When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.
a. True
b. False
ANSWER: True
POINTS: 1
7. Taxes affect market participants by increasing the price paid by the buyer and received by the
seller.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
8. Taxes affect market participants by increasing the price paid by the buyer and decreasing the
price received by the seller.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
9. A tax raises the price received by sellers and lowers the price paid by buyers.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
10. Normally, both buyers and sellers of a good become worse off when the good is taxed.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
11. When a good is taxed, the tax revenue collected by the government equals the decrease in the
welfare of buyers and sellers caused by the tax.
a. True
b. False
ANSWER: False
POINTS: 1
12. A tax places a wedge between the price buyers pay and the price sellers receive.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
13. A tax on a good causes the size of the market to increase.

a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
14. A tax on a good causes the size of the market to shrink.

a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
15. When a tax is imposed, the loss of consumer surplus and producer surplus as a result of the tax
exceeds the tax revenue collected by the government.
a. True
b. False
ANSWER: True
POINTS: 1
16. Economists use the government’s tax revenue to measure the public benefit from a tax.
a. True
b. False
ANSWER: True
POINTS: 1
17. Because taxes distort incentives, they cause markets to allocate resources inefficiently.
a. True
b. False
ANSWER: True
POINTS: 1
18. Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of
the gains from trade.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
19. If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
20. If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden
of the tax.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
21. Taxes create deadweight losses.

a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
22. When a tax is imposed on a good, consumer surplus decreases and producer surplus remains
unchanged.
a. True
b. False
ANSWER: False
POINTS: 1
23. When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than
the resulting decrease in producer surplus.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
24. Taxes drive a wedge into the market by raising the price that sellers receive and lowering the
price that buyers pay.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
25. Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is
levied.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
26. As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
27. The greater the elasticity of demand, the smaller the deadweight loss of a tax.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
28. The more inelastic are demand and supply, the greater is the deadweight loss of a tax.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
29. The elasticities of the supply and demand curves in the market for cigarettes affect how much a
tax distorts that market.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
30. If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight
loss.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
31. The most important tax in the U.S. economy is the tax on corporations’ profits.
a. True
b. False
ANSWER: False
POINTS: 1
32. The Social Security tax, and to a large extent, the federal income tax, are labor taxes.
a. True
b. False
ANSWER: True
POINTS: 1
33. Taxes on labor tend to increase the number of hours that people choose to work.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
34. Taxes on labor tend to encourage the elderly to retire early.

a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
35. Taxes on labor tend to encourage second earners to stay at home rather than work in the labor
force.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
36. Economists disagree on whether labor taxes have a small or large deadweight loss.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
37. The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create
a larger deadweight loss than will the same tax on donuts, other things equal.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
38. The larger the deadweight loss from taxation, the larger the cost of government programs.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
39. A tax on insulin is likely to cause a very large deadweight loss to society.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
40. When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
41. The more elastic the supply, the larger the deadweight loss from a tax, all else equal.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
42. The demand for beer is more elastic than the demand for milk, so a tax on beer would have a
smaller deadweight loss than an equivalent tax on milk, all else equal.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
43. The Social Security tax is a labor tax.

a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
44. When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
45. The deadweight loss of a tax rises even more rapidly than the size of the tax.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
46. As the size of a tax increases, the government's tax revenue rises, then falls.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
47. Tax revenues increase in direct proportion to increases in the size of the tax.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
48. If the size of a tax doubles, the deadweight loss doubles.

a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
49. If the size of a tax triples, the deadweight loss increases by a factor of six.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
50. Economist Arthur Laffer made the argument that tax rates in the United States were so high that
reducing the rates would increase tax revenue.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
51. The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
52. The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly
that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax
revenue.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
53. The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue,
became known as supply-side economics.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
54. The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to
taxes in markets with smaller elasticities of supply.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
55. The more elastic are supply and demand in a market, the greater are the distortions caused by a
tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
56. The optimal tax is difficult to determine because although revenues rise and fall as the size of the
tax increases, deadweight loss continues to increase.
a. True
b. False
ANSWER: True
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
57. Suppose that a university charges students a $100 “tax” to register for business classes. The next
year the university raises the “tax” to $150. The deadweight loss from the “tax” triples.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
58. Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is
a consensus that the relevant elasticities of demand and supply are very low.
a. True
b. False
ANSWER: False
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
59. When the government imposes taxes on buyers and sellers of a good, society loses some of the
benefits of market efficiency.
a. True
b. False
ANSWER: True
POINTS: 1
60. Suppose the government levies a tax of the vertical distance from point A to point B. Using the
graph shown, determine the value of each of the following:
a. equilibrium price before the tax
b. consumer surplus before the tax
c. producer surplus before the tax
d. total surplus before the tax
e. consumer surplus after the tax
f. producer surplus after the tax
g. total tax revenue to the government
h. total surplus (consumer surplus+producer surplus+tax revenue) after the tax
i. deadweight loss
ANSWER: a. $10
b. $3,600
c. $2,400
d. $6,000
e. $900
f. $600
g. $3,000
h. $4,500
i. $1,500
POINTS: 1
61. John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity cost is
$15, and Willa would be willing to pay $25 to have her lawn mowed. What is the maximum tax
the government can impose on lawn mowing without discouraging John and Willa from continuing
their mutually beneficial arrangement?
ANSWER: If the tax is less than $10, there will exist a price at which both John
and Willa will still benefit from the lawn-mowing arrangement. If
the tax is $10, a price can be set which will leave John and Willa
neither better off nor worse off from the lawn-mowing
arrangement. If the tax is greater than $10, all possible prices will
leave at least one of the parties worse off from the lawn-mowing
arrangement.
POINTS: 1
TOPICS: DISC: Taxes
62. Use the following graph shown to fill in the table that follows.
WITHOUT TAX WITH TAX CHANGE

Consumer surplus
Producer surplus
Tax revenue
Total surplus
ANSWER: WITHOUT TAX WITH TAX CHANGE

Consumer surplus A+B+C A –(B+C)
Producer surplus D+F+G F –(D+G)
Tax revenue None B+D (B+D)
Total surplus A+B+C+D+F+G A+B+D+F –(C+G)
POINTS: 1
63. Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + 3P Qd = 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax is placed on
buyers so that
Qd = 400 - 2(P + T).
If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers
and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity
with your first answers. What does this show you?
ANSWER: Prior to the tax, the equilibrium price would be $60 and the
equilibrium quantity would be 280. After the tax is imposed, P, the
price received by sellers would be $54. The price paid by buyers
would be $69. The quantity sold would be 262. The new answer
shows three obvious facts. First, buyers pay more with a tax.
Second, sellers receive less with a tax. Third, the size of the market
shrinks when a tax is imposed on a product.
POINTS: 1
TOPICS: DISC: Taxes
64. Using demand and supply diagrams, show the difference in deadweight loss between (a) a market
with inelastic demand and supply and (b) a market with elastic demand and supply.
ANSWER:
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
65. Illustrate on three demand-and-supply graphs how the size of a tax (small, medium and large) can
alter total revenue and deadweight loss.
ANSWER:
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Problems
1. In terms of gains from trade, why is it true that taxes cause deadweight losses?
ANSWER: Taxes cause deadweight losses because they prevent buyers and
sellers from realizing some of the gains from trade.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: n
2. A tax is imposed on a certain good. The tax produces revenue of $5,000 for the government. The
tax reduces consumer surplus by $3,000 and it reduces producer surplus by $4,000. What is the
amount of the deadweight loss of the tax?
ANSWER: The deadweight loss amounts to $3,000 + $4,000 - $5,000 =

$2,000.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: n
Figure 8-25
3. Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?
ANSWER: The equilibrium price is $5 and the equilibrium quantity is 100 units.
POINTS: 1
TOPICS: DISC: Supply and Demand Equilibrium
4. Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?
ANSWER: Consumer surplus is $250 at the equilibrium.

POINTS: 1
5. Refer to Figure 8-25. How much is producer surplus at the market equilibrium?
ANSWER: Producer surplus is $250 at the equilibrium.

POINTS: 1
6. Refer to Figure 8-25. How much is total surplus at the market equilibrium?
ANSWER: Total surplus is $500 at the equilibrium.

POINTS: 1
7. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. What price
will consumers pay for the good after the tax is imposed?
ANSWER: Consumers will pay $7 per unit after the tax is imposed.
POINTS: 1
TOPICS: DISC: Taxes
will sellers receive for the good after the tax is imposed?
ANSWER: Sellers will receive $3 per unit after the tax is imposed.
POINTS: 1
TOPICS: DISC: Taxes
9. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many
units of this good will be bought and sold after the tax is imposed?
ANSWER: 60 units will be bought and sold after the tax is imposed.
POINTS: 1
TOPICS: DISC: Taxes
10. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much
is consumer surplus after the tax is imposed?
ANSWER: Consumer surplus is $90 after the tax is imposed.

POINTS: 1
is producer surplus after the tax is imposed?
ANSWER: Producer surplus is $90 after the tax is imposed.

POINTS: 1
tax revenue is collected after the tax is imposed?
ANSWER: Total tax revenue is $240 after the tax is imposed.

POINTS: 1
TOPICS: DISC: Taxes
13. Refer to Figure 8-25. Suppose the government increases the size of the tax on this good from
$4 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay
the same?
ANSWER: Total tax revenue will stay the same at $240.

POINTS: 1
TOPICS: DISC: Taxes
is total surplus after the tax is imposed?
ANSWER: Total surplus is $420 after the tax is imposed.

POINTS: 1
TOPICS: DISC: Taxes
is the deadweight loss from this tax?
ANSWER: The deadweight loss from this tax is $80.

POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:
16. Refer to Scenario 8-3. What are the equilibrium price and equilibrium quantity in this market?
ANSWER: The equilibrium price is $50 and the equilibrium quantity is 150
units.
POINTS: 1
17. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:
What price will sellers receive and what price will buyers pay after the tax is imposed?
ANSWER: Buyers will pay
and sellers will receive
POINTS: 1
TOPICS: DISC: Taxes
becomes:
What quantity will be bought and sold after the tax is imposed?
ANSWER: The quantity will be
POINTS: 1
TOPICS: DISC: Taxes
becomes:
How much tax revenue will be collected after this tax is imposed?
ANSWER: The tax revenue will be
POINTS: 1
TOPICS: DISC: Taxes
becomes:
What will be the deadweight loss from this tax?
ANSWER: The deadweight loss will be
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
becomes:
If T = 40, what price will buyers pay and what price will sellers receive?
ANSWER: Buyers will pay $80 per unit and sellers will receive $40 per unit.
POINTS: 1
TOPICS: DISC: Taxes
becomes:
If T = 40, how many units will be bought and sold after the tax is imposed?
POINTS: 1
TOPICS: DISC: Taxes
becomes:
If T = 40, how much tax revenue will be collected from this tax?
ANSWER: Tax revenue will be $4,800.

POINTS: 1
TOPICS: DISC: Taxes
becomes:
If T = 40, how much is the burden of the tax on the buyers and on the sellers?
ANSWER: The burden of the tax on buyers is $30, and the burden of the tax
on sellers is $10.
POINTS: 1
TOPICS: DISC: Taxes
becomes:
If T = 40, how much will be the deadweight loss from this tax?
ANSWER: The deadweight loss from this tax will be $600.

POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-26
26. Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?
ANSWER: The equilibrium price is $4, and the equilibrium quantity is 80 units.
POINTS: 1
27. Refer to Figure 8-26. How much is consumer surplus at the market equilibrium?
ANSWER: Consumer surplus is 0.5 x 80 x (12-4) = $320 at the market

equilibrium.
POINTS: 1
28. Refer to Figure 8-26. How much is producer surplus at the market equilibrium?
ANSWER: Producer surplus is 0.5 x 80 x (4-0) = $160 at the market

equilibrium.
POINTS: 1
29. Refer to Figure 8-26. How much is total surplus at the market equilibrium?
ANSWER: Total surplus is the sum of consumer surplus and producer surplus,
which equals $320 + $160 = $480 at the market equilibrium.
POINTS: 1
will consumers pay for the good after the tax is imposed?
ANSWER: Consumers will pay $6 per unit after the tax is imposed.
POINTS: 1
TOPICS: DISC: Taxes
will sellers receive for the good after the tax is imposed?
ANSWER: Sellers will receive $3 per unit after the tax is imposed.
POINTS: 1
TOPICS: DISC: Taxes
32. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many
units of this good will be bought and sold after the tax is imposed?
POINTS: 1
TOPICS: DISC: Supply and Demand
is consumer surplus after the tax is imposed?
ANSWER: Consumer surplus is 0.5 x 60 x (12-6) = $180 after the tax is

imposed.
POINTS: 1
is producer surplus after the tax is imposed?
ANSWER: Producer surplus is 0.5 x 60 x (3-0) = $90 after the tax is imposed.
POINTS: 1
tax revenue is collected after the tax is imposed?
ANSWER: Total tax revenue is $3 x 60 = $180 after the tax is imposed.
POINTS: 1
TOPICS: DISC: Taxes
36. Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from
$3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay
the same?
ANSWER: Total tax revenue will increase from the $3 x 60 = $180 before the
tax to $6 x 40 = $240 after the tax.
POINTS: 1
TOPICS: DISC: Taxes
is total surplus after the tax is imposed?
ANSWER: Total surplus is the sum of consumer surplus and producer surplus
and tax revenue, which equals $180 + $90 + $180 = $450 after the
tax is imposed.
POINTS: 1
is the deadweight loss from this tax?
ANSWER: The deadweight loss from this tax is 0.5 x (80-60) x (6-3) = $30.
Another way to calculate deadweight loss is to subtract the total
surplus after the tax from the total surplus before the tax, which
equals $480 - $450.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-27
39. Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and
Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each
market, the tax will create a larger deadweight loss in which market? Explain.
ANSWER: The deadweight loss will be larger in Market A than Market B

because the demand curve is more elastic in Market A than in
Market B. The more elastic (inelastic) the demand, the more (less)
that quantity decreases when the tax increases the price. The
amount by which quantity decreases is the key factor for measuring
deadweight loss. The decrease in quantity is the “base” of the
deadweight loss triangle. Recall that we measure the area of a
triangle as 0.5 x base x height. The height is the amount of the tax,
which remains constant in this comparison. The more (less) that
quantity responds to a change in price, the larger (smaller) the area
of deadweight loss.
The figure below illustrates the area of deadweight loss using a $6

tax in each market.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
Figure 8-28
40. Refer to Figure 8-28. Suppose that Market A is characterized by Demand 1 and Supply 1, and
Market B is characterized by Demand 1 and Supply 2. If an identical tax is imposed on each
market, the tax will create a larger deadweight loss in which market? Explain.
ANSWER: The deadweight loss will be larger in Market A than Market B

because the supply curve is more elastic in Market A than in
Market B. The more elastic (inelastic) the supply, the more (less)
that quantity decreases when the tax increases the price. The
amount by which quantity decreases is the key factor for measuring
deadweight loss. The decrease in quantity is the “base” of the
deadweight loss triangle. Recall that we measure the area of a
triangle as 0.5 x base x height. The height is the amount of the tax,
which remains constant in this comparison. The more (less) that
quantity responds to a change in price, the larger (smaller) the area
of deadweight loss.
The figure below illustrates the area of deadweight loss using a $3

tax in each market.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
41. Provide several examples of important taxes on labor in the United States. For a typical worker,
what is the marginal tax rate on labor income once all the labor taxes are summed?
ANSWER: *the Social Security tax

*the Medicare tax
*the federal income tax
*a state income tax (for many states)
The marginal tax rate on labor income for a typical worker is about
40 percent.
POINTS: 1
42. Is the United States’ labor supply more inelastic or more elastic? Briefly summarize the
competing theories.
ANSWER: Some labor economists believe that most workers work full time
regardless of their wages. Hence, these economists believe that
labor supply is more inelastic.
Other labor economists believe that labor supply is more elastics

because of the following reasons:
*Many workers can adjust the number of hours that they work.
Some people have a choice about working overtime, for example.
*Some workers are the second earner in their families. They may
choose to work part time in the work place in order to spend more
time at home. They may respond to higher wages by entering the
work force, thus working more hours.
*Some older workers can choose when to retire, and once retired,
they may choose to work part time.
*Some people engage in economic activity that is a part of the
underground economy. These people will adjust whether they work
in legitimate jobs or as a part of the underground economy based
on wages.
POINTS: 1
TOPICS: DISC: Labor Economics Supply
43. The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy
drinks or a tax on milk have a larger deadweight loss? Explain.
ANSWER: A tax on energy drinks would have a larger deadweight loss than a
tax on milk. A tax on energy drinks would raise their price.
Because their demand is more elastic, quantity would respond
more, thus increasing deadweight loss.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
44. Suppose that the market for product X is characterized by a typical, downward-sloping, linear
demand curve and a typical, upward-sloping, linear supply curve. Suppose the price elasticity of
supply is 0.7. Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of
the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is
1.5?
ANSWER: The deadweight loss will be smaller if the price elasticity of

demand is 0.6 because the more inelastic the price elasticity of
demand, the less quantity will decrease due to the increase in price
from the tax. The smaller the decrease in quantity, the smaller the
deadweight loss.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
45. Suppose the demand curve and the supply curve in a market are both linear, and suppose the price
elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price
elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?
ANSWER: The deadweight loss will be greater if the price elasticity of

demand is 0.7.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a
deadweight loss of $200, how large would be the deadweight loss from a $4 tax per unit?
ANSWER: The deadweight loss will be $800 because the deadweight loss
rises by the square of the tax increase. Thus, if the tax doubles, the
deadweight loss quadruples.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a
deadweight loss of $200, how large would be the deadweight loss from a $6 tax per unit?
ANSWER: The deadweight loss will be $1,800 because the deadweight loss
rises by the square of the tax increase. Thus, if the tax triples, the
deadweight loss increases nine-fold.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
48. Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit
results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per
unit?
ANSWER: The deadweight loss will be $450.

POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
49. Suppose the demand curve and the supply curve in a market are both linear. To begin, there was
a $5 tax per unit, and the $5 tax resulted in a deadweight loss of $1,500. Now, the tax per unit is
higher, with the higher tax resulting in a deadweight loss of $6,000. What is the amount of the
new tax per unit?
ANSWER: The new tax per unit is $10. Doubling the size of the tax
quadruples the size of the deadweight loss.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
NOTES: n
Figure 8-29
50. Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax
revenues?
ANSWER: When the tax is $3, tax revenue is $3 x 60 = $180. When the tax is
$6, tax revenue is $6 x 40 = $240. When the tax is $9, tax revenue
is $9 x 20 = $180. So tax revenue first increases, then decreases
as the size of the tax increases.
POINTS: 1
TOPICS: DISC: Taxes
51. Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to the
deadweight loss from the tax?
ANSWER: When the tax is $3, deadweight loss is 0.5 x 3 x 20 = $30. When
the tax is $6, deadweight loss is 0.5 x 6 x 40 = $120. When the tax
is $9, deadweight loss is 0.5 x 9 x 60 = $270. So the deadweight
loss of the tax increases exponentially as the size of the tax
increases.
POINTS: 1
TOPICS: DISC: Taxes
Deadweight Loss
52. Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which
would you choose and why?
ANSWER: If the objective is to maximize tax revenues, the $6 tax generates

the highest tax revenues of the three choices. If the objective is to
minimize deadweight loss, the $3 tax generates the lowest
deadweight loss of the three choices. Many people would choose
the “medium” level tax, which in this case would be the $6 tax,
because it raises the most revenues, while the deadweight loss that
it creates is smaller than the “large” tax (although bigger than the
“small” tax).
POINTS: 1
TOPICS: DISC: Taxes
53. Describe the Laffer curve.
ANSWER: The Laffer curve depicts the relationship between the size of a tax
and the amount of tax revenue generated. As the size of a tax
increases, tax revenue first increases but then decreases.
POINTS: 1
TOPICS: DISC: Taxes
Laffer Curve
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1. In 1776, the American Revolution was sparked by anger over

5. To fully understand how taxes affect economic well-being, we must

Multiple Choice – Section 01: The Deadweight Loss of Taxation

3. When a tax is placed on a product, the price paid by buyers

5. The government’s benefit from a tax can be measured by

7. When a good is taxed,

TOPICS: DISC: Welfare Analysis

10. A tax levied on the sellers of a good shifts the

11. A tax levied on the buyers of a good shifts the

TOPICS: DISC: Taxes

NATIONAL STANDARDS: United States - BUSPROG: Analytic

17. When a tax is imposed on the sellers of a good, the

LEARNING OBJECTIVES: ECON.MANK.15.35 - LO: 8-1

18. A tax placed on buyers of tuxedoes shifts the

24. When a tax is levied on a good,

KEYWORDS: BLOOM'S: Comprehension

26. When a tax is levied on the sellers of a good, the

28. When a tax on a good is enacted,

29. A tax placed on a good

30. When a tax is levied on buyers of a good,

31. When a tax is levied on a good,

32. When a tax is levied on a good,

33. The benefit to buyers of participating in a market is measured by

34. The benefit to buyers of participating in a market is measured by

35. The benefit to sellers of participating in a market is measured by the

36. The benefit that government receives from a tax is measured by

37. The benefit that government receives from a tax is measured by

39. When a tax is levied on buyers, the

42. A tax on a good

46. Which of the following quantities decrease in response to a tax on a good?

49. Total surplus with a tax is equal to

50. Taxes cause deadweight losses because they

51. Taxes cause deadweight losses because taxes

52. Deadweight loss measures the loss

53. The loss in total surplus resulting from a tax is called

54. Deadweight loss is the

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

88. Refer to Figure 8-2. Consumer surplus without the tax is

89. Refer to Figure 8-2. Producer surplus without the tax is

90. Refer to Figure 8-2. Total surplus without the tax is

d. Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

120. Refer to Figure 8-5. The tax is levied on

KEYWORDS: BLOOM'S: Application

152. Refer to Figure 8-7. Which of the following statements is correct?

153. Refer to Figure 8-7. Which of the following statements is correct?

154. Refer to Figure 8-7. As a result of the tax,

156. Refer to Figure 8-7. Which of the following statements is correct?

KEYWORDS: BLOOM'S: Comprehension

165. Refer to Figure 8-8. One effect of the tax is to

166. Refer to Figure 8-8. One effect of the tax is to