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CHAPTER 5
CONCEPT MAP
I. Surplus
A. Consumer Surplus
B. Producer Surplus
C. Social Welfare
II. Efficiency
III. Equity
IV. Taxes and Prices
A. Excise Tax
B. Consumer Tax
C. Producer Tax
D. Consumer Price
E. Producer Price
F. Tax Incidence
G. Tax Revenue
H. Deadweight Loss
I. Complement Price
J. Substitute Price
V. Elasticity
A. Demand Elasticity
B. Supply Elasticity
MULTIPLE-CHOICE QUESTIONS
1. Consumer surplus is defined as the:
a. difference between the willingness to pay for a good and the willingness to sell it.
b. total revenue earned from producing and selling some good.
c. difference between the willingness to pay for a good and the price paid to get it.
d. quantity of units that consumers want to buy at the market price.
e. difference between the price the seller receives and the willingness to sell it.
ANS: CDIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Remembering
2. Consumer surplus is the difference between:
a. supply and demand.
b. the price the producer receives and the willingness to sell a good.
c. the willingness to pay for a good and the willingness to sell a good.
d. the willingness to pay for a good and the amount that is paid to get it.
1
e. the price paid for a good and the amount of the good produced.
ANS: D DIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Remembering
3. The difference between the willingness to pay for a good and the amount that is paid to get it
is also known as:
a. consumer expenditure.
b. surplus spending.
c. consumer benefit.
d. producer profit.
e. consumer surplus.
ANS: E DIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Remembering
4. All else being held constant, an increase in the price of a good would necessarily:
a. increase social welfare.
b. decrease producer surplus.
c. decrease consumer surplus.
d. increase consumer surplus.
e. increase the supply of the good.
ANS: CDIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Understanding
5. Holding all else constant, when the price of a good increases:
a. consumer surplus increases.
b. producer surplus decreases.
c. both producer surplus and consumer surplus increase.
d. both consumer surplus and producer surplus decrease.
e. consumer surplus decreases.
ANS: E DIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Understanding
6. Holding all else constant, when the price of a good decreases:
a. producer surplus increases.
b. consumer surplus increases.
c. both consumer surplus and producer surplus increase.
d. consumer surplus decreases.
e. both consumer surplus and producer surplus decrease.
ANS: BDIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Understanding
7. Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes.
The shoes have a price of $45. What is the total consumer surplus for Bob and Bill?
a. $15
b. $20
c. $5
d. $25
2
e. $35
ANS: D DIF: Easy TOP: I.A.
REF: Consumer Surplus
MSC: Applying
8. Jamal is willing to pay $85 for a new jacket that sells for $70. Eddie is willing to pay $65 for that
same jacket. What is the total consumer surplus for Jamal and Eddie?
a. $30
b. $15
c. $20
d. $25
e. $155
ANS: BDIF: Medium TOP: I.A.
REF: Consumer Surplus MSC: Applying
9. Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two
consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain
white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00
and $4.15 per pair. How much is total consumer surplus in this market?
a. $2.25
b. $3.00
c. $0.75
d. $5.25
e. $15.25
ANS: D DIF: Medium TOP: I.A.
REF: Consumer Surplus MSC: Applying
10. Producer surplus is the difference between:
a. supply and demand.
b. the price the producer receives and the willingness to sell a good.
c. the willingness to pay for a good and the willingness to sell a good.
d. the willingness to pay for a good and the amount that is paid to get it.
e. the price paid for a good and the amount of the good produced.
ANS: BDIF: Easy TOP: I.B.
REF: Producer Surplus MSC: Remembering
11. Producer surplus is defined as the:
a. difference between the willingness to pay for a good and the willingness to sell it.
b. difference between the price the seller receives and the willingness to sell it.
c. difference between the willingness to pay for a good and the price paid to get it.
d. quantity of units that consumers want to buy at the market price.
e. total revenue earned from producing and selling some good.
ANS: BDIF: Easy TOP: I.B.
REF: Producer Surplus MSC: Remembering
12. The difference between the willingness to sell a good and the price a producer receives is also
known as:
a. producer profit.
b. producer surplus.
c. consumer waste.
d. tax revenue.
e. producer benefit.
3
ANS: BDIF: Easy TOP: I.B.
REF: Producer Surplus MSC: Remembering
13. All else held constant, a decrease in the price of a good would necessarily:
a. increase social welfare.
b. decrease producer surplus.
c. decrease consumer surplus.
d. increase demand for the good.
e. increase producer surplus.
ANS: BDIF: Easy TOP: I.B.
REF: Producer Surplus MSC: Understanding
14. When the price of a good increases and all else is held constant:
a. both consumer surplus and producer surplus decrease.
b. both consumer surplus and producer surplus increase.
c. consumer surplus decreases.
d. producer surplus decreases.
e. producer surplus increases.
ANS: E DIF: Easy TOP: I.B.
REF: Producer Surplus MSC: Understanding
15. When the price of a good decreases and all else is held constant:
a. producer surplus increases.
b. both consumer surplus and producer surplus decrease.
c. both consumer surplus and producer surplus increase.
d. producer surplus decreases.
e. consumer surplus decreases.
ANS: D DIF: Easy TOP: I.B.
REF: Producer Surplus MSC: Understanding
16. MJM Products, Inc., designs and sells flannel jackets. The company is willing to sell a men’s
flannel jacket for as little as $45. Its main competitor is RL Outriggers, which is willing to sell
the same men’s flannel jacket for as little as $40. The current market price of that type of
jacket is $57. What is the total producer surplus for the two firms?
a. $95
b. $12
c. $17
d. $29
e. $5
ANS: D DIF: Medium TOP: I.B.
REF: Producer Surplus MSC: Applying
17. Muddy’s Bakery and Lilly’s Sweetshop both sell cupcakes. The market price of one chocolate
cupcake is $2.50. Muddy’s is willing to sell a cupcake for as little as $1.65; Lilly’s is willing to sell
a cupcake for as little as $1.75. What is the total producer surplus for the two firms?
a. $0.75
b. $1.60
c. $0.85
d. $2.50
e. $3.40
ANS: BDIF: Medium TOP: I.B.
REF: Producer Surplus MSC: Applying
4
18. Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two
consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain
white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00
and $4.15 per pair. What is the total producer surplus in this market?
a. $0.15
b. $8.15
c. $0.85
d. $1.00
e. $1.85
ANS: E DIF: Medium TOP: I.B.
REF: Producer Surplus MSC: Applying
19. When looking at a supply and demand graph, you would find consumer surplus:
a. above the demand curve and below the supply curve.
b. below the demand curve and above market price.
c. to the right of equilibrium quantity and above market price.
d. above the demand curve and above the supply curve.
e. below market price and above the supply curve.
ANS: BDIF: Difficult TOP: I.A.
REF: When Is a Market Efficient?
MSC: Remembering
20. When looking at a graph, the area under the demand curve and above market price is defined
as:
a. tax revenue.
b. spending surplus.
c. consumer benefit.
d. producer surplus.
e. consumer surplus.
ANS: E DIF: Easy TOP: I.A.
REF: When Is a Market Efficient?
MSC: Remembering
21. Explain what happens to the amount of consumer surplus and producer surplus when the
supply of scarves suddenly declines (shifts left).
a. Producer surplus declines and consumer surplus is unchanged.
b. Consumer surplus declines and producer surplus is unchanged.
c. Consumer surplus declines and producer surplus declines.
d. Consumer surplus is unchanged and producer surplus is unchanged.
e. Producer surplus increases and consumer surplus increases.
ANS: CDIF: Medium TOP: I.A. and B.
REF: When Is a Market Efficient?
MSC: Applying
22. When looking at a supply and demand graph, you would find producer surplus:
a. above the demand curve and below the supply curve.
b. below the demand curve and above market price.
c. to the right of equilibrium quantity and above market price.
d. above the demand curve and above the supply curve.
e. below market price and above the supply curve.
ANS: E DIF: Difficult TOP: I.B.
5
REF: When Is a Market Efficient?
MSC: Remembering
23. When looking at a graph, the area above the supply curve and below market price is defined
as:
a. consumer surplus.
b. producer surplus.
c. producer benefit.
d. business profit.
e. tax revenue.
ANS: BDIF: Easy TOP: I.B.
REF: When Is a Market Efficient?
MSC: Remembering
24. Producer surplus is depicted by the area:
a. above market price and below the supply curve.
b. between the supply curve and the demand curve.
c. below market price and above the supply curve.
d. above market price and below the demand curve.
e. above the demand curve and below the supply curve.
ANS: CDIF: Easy TOP: I.B.
REF: When Is a Market Efficient?
MSC: Remembering
25. Social welfare (i.e., the sum of producer and consumer surplus) is maximized when:
a. the government taxes most goods and services.
b. very few consumers and producers exist within a market.
c. the market reaches its equilibrium price and quantity.
d. supply and demand are perfectly inelastic.
e. the government imposes price controls.
ANS: CDIF: Easy TOP: I.C.
REF: When Is a Market Efficient?
MSC: Remembering
26. Social welfare is measured as the sum of:
a. tax revenue and deadweight loss.
b. deadweight loss and consumer surplus.
c. producer surplus and tax revenue.
d. consumer surplus and tax revenue.
e. consumer surplus and producer surplus.
ANS: E DIF: Medium TOP: I.C.
REF: When Is a Market Efficient?
MSC: Remembering
27. Consumer surplus plus producer surplus equals:
a. deadweight loss.
b. economic profit.
c. social welfare.
d. tax revenue.
e. market distortions.
ANS: CDIF: Medium TOP: I.C.
REF: When Is a Market Efficient?
6
MSC: Remembering
28. Consider the market for socks. The current price of a pair of plain white socks is $5.00. Two
consumers, Jeff and Samir, are willing to pay $7.25 and $8.00, respectively, for a pair of plain
white socks. Two sock manufacturers are willing to sell plain white socks for as little as $4.00
and $4.15 per pair. What is the total producer AND consumer surplus (i.e., social welfare) in
this market?
a. $7.10
b. $5.25
c. $1.85
d. $23.40
e. $4.50
ANS: A DIF: Difficult TOP: I.C.
REF: When Is a Market Efficient?
MSC: Applying
29. A market has reached an efficient outcome when:
a. producers are able to produce and sell as much as they like.
b. total surplus is minimized.
c. producer surplus is greater than consumer surplus.
d. consumers are able to purchase as much as they like.
e. total surplus is maximized.
ANS: E DIF: Easy TOP: II. REF: When Is a Market Efficient? MSC: Remembering
30. The price–quantity combination found where the supply and demand curves intersect is a
unique combination that is efficient because:
a. producers can sell as much as they want.
b. total surplus is maximized.
c. tax revenue is sufficient to pay for government services.
d. consumers can buy as much as they want.
e. new products are being introduced.
ANS: BDIF: Medium TOP: II.
REF: When Is a Market Efficient?
MSC: Understanding
31. Which of the following statements is concerned with efficiency rather than equity?
a. It is not fair to tax the income earned by the wealthy at higher rates than the poor.
b. Excise taxes on tobacco products affect low-income families the most and should be
reduced.
c. Our income tax system should be more progressive than it is now.
d. Taxes cause distortions in markets and reduce social welfare.
e. The best type of income tax is a flat tax because it treats everyone the same.
ANS: D DIF: Difficult TOP: II.
REF: The Efficiency–Equity Debate
MSC: Understanding
32. Which of the following statements is concerned with efficiency rather than equity?
a. Sales taxes on food are regressive and should be eliminated.
b. Income taxes should be raised on low-income families so that everyone pays.
c. The United States should implement a wealth tax on upper-income households.
d. Excise taxes tend to raise prices for consumers.
e. The overall tax system in the United States should be much more progressive.
7
ANS: D DIF: Difficult TOP: II.
REF: The Efficiency–Equity Debate
MSC: Understanding
33. Questions about the equity of a tax are concerned mostly with:
a. efficiency.
b. tax revenue.
c. fairness.
d. deadweight loss.
e. elasticity.
ANS: CDIF: Easy TOP: III.
REF: The Efficiency–Equity Debate
MSC: Remembering
34. Which of the following statements is concerned with equity rather than efficiency?
a. Almost all taxes create some amount of deadweight loss.
b. Excise taxes tend to raise prices for consumers and reduce sales for firms.
c. Tax rates on the wealthy are too low and should be raised.
d. The incidence of a tax does not depend on who actually pays it.
e. Taxes generate revenues that governments spend on services.
ANS: CDIF: Difficult TOP: III.
REF: The Efficiency–Equity Debate
MSC: Understanding
35. Which of the following statements is concerned with equity rather than efficiency?
a. Imposing a tax on a good reduces the incentive to buy that good.
b. The burden of a sales tax is typically shared by consumers and stores.
c. Deadweight loss is the lost social welfare from a tax.
d. Tax rates on middle-class households are too high and should be reduced.
e. Taxes cause producers and consumers to lose surplus.
ANS: D DIF: Difficult TOP: III.
REF: The Efficiency–Equity Debate
MSC: Understanding
36. A tax on apples would cause consumers to suffer because:
a. consumer surplus would increase.
b. the price of apples would increase and fewer apples would be purchased.
c. revenues for apple growers would decrease.
d. the government would collect revenue from the tax.
e. producer surplus would decrease.
ANS: BDIF: Medium TOP: I.A.
REF: Tax Incidence MSC: Applying
8
37. Which areas represent consumer surplus before the tax is imposed?
a. A + B + F
b. A
c. C + G + E
d. B + C
e. F + G
ANS: A DIF: Medium TOP: I.A.
REF: Tax Incidence MSC: Analyzing
38. Which areas represent consumer surplus after the tax is imposed?
a. A
b. A + B
c. A + B + F
d. F + G
e. B + C + F
ANS: A DIF: Medium TOP: I.A.
REF: Tax Incidence MSC: Analyzing
39. Which areas represent the amount of consumer surplus lost due to the tax?
a. A + F
b. B + C
c. A
d. A + B + F
e. B + F
ANS: E DIF: Medium TOP: I.A.
REF: Tax Incidence MSC: Analyzing
40. Which areas represent producer surplus before the tax is imposed?
a. F + G
b. E + C + G
c. A + B + C + E
d. B + C + F + G
e. E
ANS: BDIF: Medium TOP: I.B.
REF: Tax Incidence MSC: Analyzing
41. Which areas represent producer surplus after the tax is imposed?
a. E + C + G
b. E + C
9
c. E + G
d. F + G
e. E
ANS: E DIF: Medium TOP: I.B.
REF: Tax Incidence MSC: Analyzing
42. Which areas represent the amount of producer surplus lost due to the tax?
a. G
b. A + B + C + E
c. C
d. C + G
e. B + F
ANS: D DIF: Medium TOP: I.B.
REF: Tax Incidence MSC: Analyzing
43. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market
before the tax is imposed?
a. A + B + C + E + F + G
b. A + C
c. A + B + C + E
d. F + G
e. B + C + F + G
ANS: A DIF: Medium TOP: I.C.
REF: Tax Incidence MSC: Analyzing
44. What is the total amount of producer and consumer surplus (i.e., social welfare) in this market
after the tax is imposed?
a. A + B + C + E + F + G
b. A + E
c. A + B + C + E
d. F + G
e. B + C + F + G
ANS: BDIF: Medium TOP: I.C.
REF: Tax Incidence MSC: Analyzing
45. What areas represent the total lost consumer and producer surplus (i.e., social welfare) as a
result of the tax?
a. A + B + C + E + F + G
b. A + C
c. A + B + C + E
d. F + G
e. B + C + F + G
ANS: E DIF: Medium TOP: I.C.
REF: Tax Incidence MSC: Analyzing
46. What areas represent the total cost to society, in terms of lost social welfare, created as a
result of the tax?
a. B + C + F + G
b. A + B + F
c. C + E + G
d. A + B + C + E
e. F + G
10
ANS: E DIF: Difficult TOP: I.C.
REF: Deadweight Loss MSC: Analyzing
47. Which areas represent the revenue collected from this tax?
a. A + B + F
b. B + C
c. F + G
d. E
e. A + E
ANS: BDIF: Medium TOP: IV.F.
REF: Deadweight Loss MSC: Analyzing
48. Which party is responsible for paying this tax out of pocket?
a. consumers
b. producers
c. both consumers and producers
d. some consumers and some producers, but not all consumers and producers
e. some consumers and no producers
ANS: BDIF: Difficult TOP: IV.F.
REF: Tax Incidence MSC: Analyzing
49. What is the amount of the tax, as measured along the y axis?
a. PC + PS
b. Pe – PS
c. PC – PS
d. PC – P*
e. Pe + PS
ANS: CDIF: Difficult TOP: IV.F.
REF: Deadweight Loss MSC: Analyzing
50. What areas represent the total tax revenue created as a result of the tax?
a. A + C
b. A + E
c. B + C
d. A + E + F + G
e. A + B + C + D + E + F + G
ANS: CDIF: Difficult TOP: IV.G.
REF: Deadweight Loss MSC: Analyzing
51. What areas represent the deadweight loss created as a result of the tax?
a. A + B + C + E + F + G
b. A + C
c. A + B + C + E
d. F + G
e. B + C + F + G
ANS: D DIF: Medium TOP: IV.H.
REF: Deadweight Loss MSC: Analyzing
52. A tax on consumers would cause the ________ curve(s) to shift to the ________.
a. demand; right
b. supply; left
c. supply and demand; left
11
d. supply and demand; right
e. demand; left
ANS: E DIF: Easy TOP: IV.B. REF: Tax Incidence MSC: Understanding
53. A tax on apples would cause apple growers to suffer because:
a. consumer surplus would decrease.
b. the government would collect revenue from the tax.
c. consumers would pay higher prices.
d. producer surplus would increase.
e. revenues and profits from growing apples would decrease.
ANS: E DIF: Medium TOP: I.B.
REF: Tax Incidence MSC: Applying
54. In most cases, taxes reduce economic efficiency because:
a. they lower prices for consumers and cause firms to suffer.
b. they increase firms’ profits at the expense of consumers.
c. taxes are perceived as unfair by some taxpayers.
d. the government often spends tax revenues on programs that some voters don’t like.
e. they reduce consumer surplus and producer surplus.
ANS: E DIF: Medium TOP: II.
REF: Tax Incidence MSC: Understanding
55. It is said that taxes drive a wedge between prices. This statement is true because taxes cause:
a. both consumer and producer prices to increase.
b. the consumer price to increase but leave producer prices unchanged.
c. both consumer and producer prices to decrease.
d. the consumer price to decrease and the producer price to increase.
e. the consumer price to increase and the producer price to decrease.
ANS: E DIF: Medium TOP: II.
REF: Tax Incidence MSC: Understanding
56. The difference between the price consumers pay and the price sellers receive after a tax is
imposed is equal to the:
a. loss of social welfare from the tax.
b. dollar amount of the tax.
c. deadweight loss from the tax.
d. revenue from the tax.
e. lost profit from the tax.
ANS: BDIF: Easy TOP: IV. REF: Tax Incidence MSC: Understanding
57. When a tax is imposed on some good, what tends to happen to consumer prices and producer
prices?
a. Consumer prices decrease and producer prices increase.
b. Consumer prices increase and producer prices decrease.
c. Consumer prices increase and producer prices increase.
d. Consumer prices decrease and producer prices increase.
e. Consumer prices and producer prices converge at the same point.
ANS: BDIF: Medium TOP: IV.
REF: Tax Incidence MSC: Understanding
58. After a tax is imposed, the price paid by consumers ________ and the price received by
producers ________.
12
a. increases; increases
b. increases; decreases
c. decreases; increases
d. decreases; decreases
e. is unaffected; is unaffected
ANS: BDIF: Medium TOP: IV.
REF: Tax Incidence MSC: Understanding
59. A tax on apples would cause the price paid by consumers to ________ and the price received
by producers to ________.
a. increase; increase
b. increase; decrease
c. decrease; increase, then decrease
d. decrease; decrease
e. increase, then decrease; increase
ANS: BDIF: Medium TOP: IV.
REF: Tax Incidence MSC: Applying
60. Excise taxes are taxes that are:
a. applied to all goods and activities.
b. usually applied to inferior goods.
c. usually applied to income and capital gains.
d. never applied to goods or activities.
e. applied to a particular good or activity.
ANS: E DIF: Easy TOP: IV.A. REF: Tax Incidence MSC: Remembering
61. A tax that is applied to one specific good or service is a(n):
a. sales tax.
b. general local option sales tax.
c. property tax.
d. excise tax.
e. wealth tax.
ANS: D DIF: Easy TOP: IV.A. REF: Tax Incidence MSC: Remembering
62. A tax on consumers of a good would shift the ________ curve down and cause the price paid
by consumers to ________.
a. supply; increase
b. demand; decrease, then return to its original level
c. supply; decrease
d. demand; increase
e. supply; increase, then return to its original level
ANS: D DIF: Medium TOP: IV.B.
REF: Tax Incidence MSC: Understanding
63. If a tax causes the supply curve to shift, we know that the tax is paid out of pocket by:
a. consumers.
b. producers.
c. the government.
d. both producers and consumers.
e. consumer, producers, and the government.
ANS: BDIF: Easy TOP: IV.C. REF: Tax Incidence MSC: Remembering
13
64. A tax on producers would cause the ________ curve(s) to shift to the ________.
a. demand; left
b. supply and demand; left
c. supply; left
d. supply; right
e. supply and demand; right
ANS: CDIF: Easy TOP: IV.C. REF: Tax Incidence MSC: Understanding
65. A tax on milk would likely cause an increase in the:
a. price consumers pay for milk.
b. price producers receive for milk.
c. amount of milk sold.
d. revenues earned from selling milk.
e. profits earned by selling milk.
ANS: A DIF: Medium TOP: IV.D.
REF: Tax Incidence MSC: Applying
66. A tax on milk would likely cause a decrease in the:
a. price consumers pay for milk.
b. price of products made from milk.
c. amount of milk sold.
d. revenues from the milk tax.
e. deadweight loss from the milk tax.
ANS: CDIF: Easy TOP: IV.E. REF: Tax Incidence MSC: Applying
67. The incidence of a tax reflects:
a. who pays the tax out of pocket.
b. how much tax revenue the tax generates.
c. who bears the burden of the tax.
d. how the tax revenue from the tax is spent.
e. government efficiency in providing goods and services.
ANS: CDIF: Easy TOP: IV.F. REF: Tax Incidence MSC: Remembering
68. When a tax is imposed on some good, what happens to the amount of the good bought and
sold?
a. It increases.
b. It decreases.
c. It decreases, but only if the tax is imposed on producers.
d. It decreases, but only if the tax is imposed on consumers.
e. It increases, but only if the tax is imposed on consumers.
ANS: BDIF: Easy TOP: IV.F. REF: Tax Incidence MSC: Understanding
69. The incidence of a tax is unrelated to:
a. how responsive producers are to the tax.
b. how responsive consumers are to the tax.
c. the elasticity of supply.
d. the elasticity of demand.
e. who pays the tax out of pocket.
ANS: E DIF: Medium TOP: IV.F.
REF: Tax Incidence MSC: Understanding
14
70. When a tax is imposed on some good, what usually happens to consumer and producer
surplus?
a. They both increase.
b. They both fall to zero.
c. They both decrease.
d. Consumer surplus increases and producer surplus decreases.
e. Consumer surplus decreases and producer surplus increases.
ANS: CDIF: Medium TOP: IV.F.
REF: Tax Incidence MSC: Understanding
71. Excise taxes are popular sources of revenue for governments because:
a. they have very high levels of deadweight loss.
b. they are easy to understand.
c. consumers are rarely aware that they are paying them.
d. they are very stable sources of revenue.
e. they require very little paperwork.
ANS: D DIF: Medium TOP: IV.A.
REF: Deadweight Loss
MSC: Understanding
72. Taxes will almost always cause consumer prices to increase. How much they increase depends
on:
a. how often the government collects the tax.
b. the amount of the tax.
c. who pays the tax out of pocket.
d. who is legally obligated to pay the tax.
e. the elasticities of supply and demand.
ANS: E DIF: Medium TOP: IV.D.
REF: Deadweight Loss
MSC: Understanding
73. Taxes almost always cause producer prices to decrease. How much they decrease depends on:
a. the elasticities of supply and demand.
b. the amount of the tax.
c. who is legally obligated to pay the tax.
d. who pays the tax out of pocket.
e. how often the government collects the tax.
ANS: A DIF: Medium TOP: IV.E.
REF: Deadweight Loss
MSC: Understanding
74. When a tax is imposed on some good, the lost consumer surplus and producer surplus both
typically end up as:
a. additional revenues for firms.
b. lower prices for consumers.
c. more units of output bought and sold.
d. increased social welfare.
e. tax revenue and deadweight loss.
ANS: E DIF: Easy TOP: IV.F.
REF: Deadweight Loss
MSC: Understanding
15
75. When a tax is imposed, consumer surplus and producer surplus are reallocated to:
a. social welfare.
b. tax revenue and deadweight loss.
c. tax revenue.
d. deadweight loss.
e. government spending on public services.
ANS: BDIF: Medium TOP: IV.F.
REF: Deadweight Loss
MSC: Understanding
76. For any type of tax the government imposes:
a. supply plus demand equals market price.
b. tax revenue plus deadweight loss equals total lost social welfare.
c. tax revenue plus market price equals deadweight loss.
d. deadweight loss plus economic distortion equals tax revenue.
e. total lost social welfare plus tax revenue equals deadweight loss.
ANS: BDIF: Difficult TOP: IV.F.
REF: Deadweight Loss
MSC: Understanding
77. The revenue generated from a tax equals the:
a. amount of the good sold times the original price of the good.
b. amount of the tax times the quantity sold after the tax is imposed.
c. total social welfare lost as a result of the tax.
d. deadweight loss from the tax.
e. total consumer and producer surplus before the tax.
ANS: BDIF: Medium TOP: IV.G.
REF: Deadweight Loss MSC: Remembering
78. The per-unit dollar amount of a tax times the quantity sold after the tax is imposed equals:
a. consumer surplus.
b. deadweight loss.
c. the tax revenue.
d. producer surplus.
e. social welfare.
ANS: CDIF: Medium TOP: IV.G.
REF: Deadweight Loss MSC: Remembering
79. Assume that a $0.25/gallon tax on milk causes a loss of $250 million in consumer and producer
surplus and creates a deadweight loss of $45 million. From this information, we know that the
tax revenue from the tax is:
a. $250 million.
b. $45 million.
c. $205 million.
d. $295 million.
e. $75 million.
ANS: CDIF: Medium TOP: IV.G.
REF: Deadweight Loss MSC: Applying
80. In the long run, both supply and demand tend to become more elastic. This suggests that, in
the long run, the:
a. deadweight loss from a tax will be less than it is in the short run.
16
b. deadweight loss will be zero.
c. government will likely reduce tax rates.
d. tax revenue will be lower than it is in the short run.
e. tax revenue will be higher than it is in the short run.
ANS: D DIF: Difficult TOP: IV.G.
REF: Deadweight Loss MSC: Analyzing
81. Deadweight loss is defined as:
a. the cost to society created by distortions in the market.
b. how much revenue a tax generates.
c. who pays a tax out of pocket.
d. the dollar cost of a tax per unit of sales.
e. the benefit from additional government spending.
ANS: A DIF: Easy TOP: IV.H.
REF: Deadweight Loss MSC: Remembering
82. The cost to society created by distortions in the market as a result of a tax is also known as:
a. social distortion.
b. fiscal externality.
c. deadweight loss.
d. fiduciary imbalance.
e. budget deficit.
ANS: CDIF: Easy TOP: IV.H.
REF: Deadweight Loss MSC: Remembering
83. If the government wanted to raise taxes while generating the least amount of deadweight loss,
it should raise taxes on a good with a:
a. very elastic demand.
b. very elastic supply.
c. somewhat elastic supply.
d. somewhat elastic demand.
e. perfectly inelastic demand.
ANS: E DIF: Easy TOP: IV.H.
REF: Deadweight Loss MSC: Remembering
84. The net cost to society from the imposition of a tax is also known as:
a. tax revenue.
b. consumer surplus.
c. producer surplus.
d. deadweight loss.
e. social welfare.
ANS: D DIF: Medium TOP: IV.H.
REF: Deadweight Loss MSC: Remembering
85. The deadweight loss from a tax is likely to be less with a good that has:
a. few complements.
b. many substitutes.
c. few substitutes.
d. an elastic demand.
e. an elastic supply.
ANS: CDIF: Medium TOP: IV.H.
17
REF: Deadweight Loss
MSC: Understanding
86. A tax creates no deadweight loss only when either supply or demand is:
a. somewhat elastic.
b. perfectly elastic.
c. perfectly inelastic.
d. increasing.
e. decreasing.
ANS: CDIF: Medium TOP: IV.H.
REF: Deadweight Loss MSC: Understanding
87. The deadweight loss from a tax is likely to be greater with a good that has:
a. few complements.
b. many substitutes.
c. few substitutes.
d. an inelastic demand.
e. an inelastic supply.
ANS: BDIF: Difficult TOP: IV.H.
REF: Deadweight Loss
MSC: Understanding
88. Assume that a $0.10/pound tax on apples raises $100 million in revenue but causes a $125
million loss of consumer and producer surplus. From this information, we know that the
deadweight loss from the tax is:
a. $225 million.
b. $100 million.
c. $125 million.
d. $25 million.
e. $1.25 million.
ANS: D DIF: Medium TOP: IV.H.
REF: Deadweight Loss MSC: Applying
89. In the long run, both supply and demand tend to become more elastic. This suggests that, in
the long run, the:
a. revenue generated from the tax will increase.
b. deadweight loss from a tax will be less than it is in the short run.
c. deadweight loss from a tax will be zero.
d. deadweight loss from a tax will be greater than it is in the short run.
e. government will likely reduce tax rates.
ANS: D DIF: Difficult TOP: IV.H.
REF: Deadweight Loss MSC: Analyzing
90. The deadweight loss from a tax is equal to one half of:
a. the tax revenue multiplied by consumer surplus.
b. producer surplus multiplied by consumer surplus.
c. the decrease in quantity sold multiplied by the tax revenue.
d. the amount of the tax multiplied by the decrease in quantity sold.
e. the amount of the tax multiplied by consumer surplus.
ANS: D DIF: Difficult TOP: IV.H.
REF: Deadweight Loss MSC: Analyzing
18
91. A tax on milk would likely cause a decrease in the price of:
a. ice cream.
b. cheese.
c. soymilk.
d. nondairy creamer.
e. breakfast cereal.
ANS: E DIF: Difficult TOP: IV.I.
REF: Deadweight Loss MSC: Applying
92. Peanut butter and jelly are complements. If a tax is imposed on peanut butter, how will that
affect the market for jelly?
a. Demand for jelly will increase along with the price.
b. Demand for jelly will decrease along with the price.
c. The supply of jelly will increase and the price will decrease.
d. Both the supply and demand for jelly will increase along with the price.
e. The supply of jelly will decrease and the price will increase.
ANS: BDIF: Difficult TOP: IV.I.
REF: Deadweight Loss MSC: Applying
93. Gasoline and ethanol are substitute fuels. If the government increases taxes on gasoline, this
will cause a(n):
a. decrease in deadweight loss in the market for gasoline and an increase in the price of
ethanol.
b. increase in deadweight loss in the market for gasoline and a decrease in demand for
ethanol.
c. increase in deadweight loss in the market for gasoline and an increase in the price of
ethanol.
d. decrease in deadweight loss in the market for gasoline and an increase in demand for
ethanol.
e. increase in deadweight loss in the market for gasoline and a decrease in the price of
ethanol.
ANS: CDIF: Difficult TOP: IV.J.
REF: Deadweight Loss
MSC: Understanding
94. Butter and margarine are substitute goods. A tax on butter will have what effect on the market
for margarine?
a. The supply of margarine will increase, causing its price to fall.
b. The demand for margarine will increase, causing its price to rise.
c. The demand for margarine will decrease, causing its price to fall.
d. Both the supply and demand of margarine will decrease, causing price to fall.
e. The supply of margarine will decrease, causing price to rise.
ANS: BDIF: Difficult TOP: IV.J.
REF: Deadweight Loss MSC: Applying
95. Compared to producers, consumers will lose the greater amount of surplus from a tax if:
a. demand is more elastic than supply.
b. supply and demand are equally elastic.
c. demand is perfectly elastic.
d. demand is less elastic than supply.
e. supply is perfectly inelastic.
19
ANS: D DIF: Medium TOP: V.
REF: Deadweight Loss
MSC: Understanding
96. Compared to producers, consumers will lose the lesser amount of surplus from a tax if:
a. demand is more elastic than supply.
b. supply and demand are equally elastic.
c. demand is perfectly inelastic.
d. demand is less elastic than supply.
e. supply is perfectly elastic.
ANS: A DIF: Medium TOP: V.
REF: Deadweight Loss
MSC: Understanding
97. Compared to consumers, producers will lose the greater amount of surplus from a tax if:
a. supply and demand are equally elastic.
b. supply is less elastic than demand.
c. supply is more elastic than demand.
d. demand is perfectly inelastic.
e. supply is perfectly elastic.
ANS: BDIF: Medium TOP: V.
REF: Deadweight Loss
MSC: Understanding
98. Compared to consumers, producers will lose the lesser amount of surplus from a tax if:
a. supply and demand are equally elastic.
b. supply is less elastic than demand.
c. supply is more elastic than demand.
d. demand is perfectly inelastic.
e. supply is perfectly elastic.
ANS: CDIF: Medium TOP: V.
REF: Deadweight Loss
MSC: Understanding
99. The elasticities of supply and demand are important in determining the distribution of tax
burden because they:
a. measure how much consumers are willing to pay or how much firms must receive in order
to produce.
b. reflect who actually pays the tax out of pocket.
c. measure how responsive producers and consumers are to a change in price.
d. reflect how much tax revenue is collected from the tax.
e. determine who is legally responsible for remitting funds to the government.
ANS: CDIF: Medium TOP: V.
REF: Deadweight Loss
MSC: Understanding
100. Of the following items, which is (are) most important in determining the distribution of tax
burden?
a. who is legally responsible for paying the tax
b. the elasticities of supply and demand
c. the desired level of tax revenue
d. whether the tax is on income, wealth, sales, or imports
20
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XII.
Nyt olin kotona. Minun piti ruveta toimeeni, sillä sisareni olivat jo
ikävällä odottaneet minua, että kerrankin rupeaisin heitä
opettamaan. Heidän entinen opettajansa sai äidiltä niin paljo talous-
ja ompelutyötä, ettei hän enää ehtinyt olla lasten kanssa. Niin, nyt
olin heidän joukossaan ja nyt piti minun täällä, jossa itse olin
ensimmäiset opetukset saanut, ruveta muita opettamaan. Mutta että
alku aina on hankala, sitä en heti huomannut, sillä minun piti pienten
siskojeni kanssa alussa leikkiä ja puhua enemmän kuin tehdä työtä.
Olihan nyt kesä ja meillä paljon tointa joen rannalla lepikossa ja
myöskin somassa, pienessä puutarhassa, johon äiti oli istuttanut
kauniita kukkia. Koetin sen ohella kaikin voimin unohtaa kaupungin
elämää, joka myöskin lasten tähden onnistui. Joskus vaan, kun olin
yksin, lensivät ajatukseni siihen aikaan, kun sisaren ja veljen kanssa
yhdessä elin, ja huokaus pääsi rinnastani. Enpä ollut heistä puoleen
vuoteen mitään kuullut. Mutta Jansu kirjoitti usein minulle ja usein
muistin häntä, kun kuljin niitä paikkoja, joissa lapsena olin hänen
kanssaan leikkinyt, ja sisälläkin juolahti mieleeni moni sana, jonka
hän ennen oli puhunut tai myöhempään kirjoittanut. Ja enin muistin
häntä silloin, kun siskoineni kävin hänen vanhempainsa luona ja kun
hänen isänsä kiitti sitä, että terveenä olin päässyt kaupungista.
Yhteen aikaan oli hän ollut levoton minusta, sanoi hän kerran, sillä
minulla oli niin vieraat tavat; ja viimeisinä aikoina olivat minun
poskeni olleet semmoiset, etteivät ne ensinkään häntä tyydyttäneet.
Mutta nyt alkoivat ne entiset ruusut jälleen kukoistaa ja sentähden
tunsi hänen vanha sydämensä suurta iloa. "Jospa vaan Jansuni saisi
sinut nähdä", sanoi hän lopuksi; mutta minun veljeni on niin
kiusallinen, ettei päästä häntä enää ollenkaan kotiin. Kun häneltä
sitä pyydän, vastaa hän vaan: "onhan sinulla se onni, että olet
saanut poikasi pitää monta vuotta luonasi, voit myöskin aina hyvin
ylpeästi lausua: minullakin on poika. Sillä vaikk'ei hän aina ole sinun
luonasi, niin sinunhan hän on kuitenkin. Anna sentähden veljesikin
jonkun aikaa nauttia hänen seurastaan. En voisi päivääkään tulla
hänettä toimeen, saatikka sitte viikkoja ja kuukausia. Ja kuukausia
kuluisi, jos hän sinun luonasi tulisi käymään." — Näin hän kirjoittaa
joka kerran ja meidän vanhempain täytyy tyytyä ikäväämme.
Olemmehan hänelle kiitollisuudenvelassa Jansun tähden, ja kun
opinaika on kulunut loppuun, niin täytyy hänen tulla meitä
katsomaan.' Näin olivat asiat sepänväen luona.
"No, kyllä sinä aikaa myöten rupeat sitä tekemään, mutta nyt olet
vieras vielä", vastasi hän lempeästi.
"Kyllähän minulta saat, jos sinulla siihen niin suuri halu on." Ja
äidin johdolla kuorin puoli tusinaa pyttyjä ja sydämeni kävi sen
ohessa niin iloiseksi. "Leena", ajattelin itsekseni, "sinä soimasit
minua kateudesta, mutta olet tahtomattasi tehnyt minulle suuren
hyvyyden; sinä olet huomauttanut minua, etten ole leikkivä lapsi,
vaan että minun pitää koettaa olla äidilleni avuksi. Kiitos siitä!" — Ja
siitä hetkestä koetin jakaa työni äidin ja lasten vaiheille ja olin
sangen onnellinen, kun illalla pääsin kamariini, jonka vanhemmat
olivat minulle somasti sisustaneet.
"Se ei tee mitään, enhän saa sinua usein nähdä. Mutta nyt on
sinulla varmaan jotakin tärkeää asiaa, koska tulet minun luokseni."
"Todella", sanoi isä, "hyvä lapsi, sitä olen ennenkin ajatellut, mutta
en ole sinua ruvennut vielä vaivaamaan."
"Isä", sanoin vesissä silmin, "sinä olet nähnyt paljon vaivaa minun
tähteni, enkä minä enää ole heikko lapsi."
Hän näytti minulle vielä kerran, mitä ja kuinka minun piti tekemän,
sitte lähti hän pellolle leikkaajien luo. Mutta minä kumarruin hänen
koukeroidensa yli, joista tuskin sain selvää, ja kirjoitin iloisella
mielellä eteenpäin. — Siitä päivästä kutsui isä minua usein itseään
auttamaan; vielä useimmin sitten, kun hänelle tuli kaupungin
kauppijailta tilauskirjeitä. Äitini antoi minulle myöskin yhä enemmän
työtä maitohuoneessa ja talouskamarissa. Sen ohessa olin vielä
sisarieni opettajana. Mutta he eivät olleet ensinkään tyytyväisiä
minuun ja murisivat sitä, että minä samoin kuin Emilia heti juoksin
pois heidän luotaan, kun koulutunnit olivat loppuneet. Emilia ompeli
ja paikkaili nyt enimmästi.
Muutamia päiviä sen jälkeen, kuin Emilia oli tuonut nuoren rouvan
terveiset, läksin mäelle häntä tervehtimään. Jo eteisessä huomasin,
että täällä oli paljoa komeampaa kuin ennen. Leenakin, joka ensiksi
tuli vastaani, oli paljoa hienommissa vaatteissa ja ylpeämmän
näköisenä kuin vanhan rouvan aikana. Olihan hänellä syytäkin
ylpeillä. Hän oli ollut pitkillä matkoilla ja oli monta vuotta Saksassa
ollut Hilda neidin kamarineitsyenä ja siellä paljon nähnyt ja kuullut
paljon, josta ei maalla eläjällä ole aavistustakaan. "Eikä heille osaa
niin selvään selittääkään, että sen ymmärtäisivät" — oli hän
valittanut tovereillensa.
"Ai, terve, terve, neiti", lausui hän, "teette kerrankin meidän talolle
sen kunnian, että tulette meitä katsomaan."
"No, mikä kiire teillä on? Voittehan vähäksi aikaa tulla istumaan
meidänkin kamariimme ja puhella meidän kanssamme."
"Mutta, herra von D., olisiko minun yksin pitänyt jäädä pieneksi,
kun kaikki muut lapset ovat kasvaneet suuriksi?" Hän nauroi ja vei
minut kädestä sohvan luo.
"Eipä Liinalla ole ollut lapsesta asti niin huonoa päätä, ettei hän
muistaisi Hilda von R:n ulkomuotoa." Ja hän oli oikeassa. Huomasin
jälleen Junon kasvoilla saman kopeuden, minkä ennen pienenä
koululapsena siinä olin nähnyt.
"Olkaa niin hyvä ja istukaa," pyysi Otto von D., työntäen minulle
pehmeän nojatuolin — "ja kertokaa meille hiukan omasta
elämästänne!"
"Voi, rakas Otto", sanoi rouva, "näethän sinä, että minä vielä olen
aamupuvussani, ja pian sattuu meille tulemaan vieras päivälliselle.
Sentähden pitää minun ajoissa pukeutua. Liina ei suinkaan siitä
pahastu, etten voi häntä tänäpäivänä kauan pitää luonani. Voihan
hän tulla toisen kerran, kun minulla on enemmän aikaa."
"Voi", vastasin minä, "entiset ajat ovat olleet ja menneet! Eipä ole
siellä enää vanhaa rouvaa ja opettajatarta!" ja kyyneleet tunkeutuivat
väkisten silmiini.
"Niin, Liina", sanoi hän siihen, "vanhaa, kallista rouvaa tosin ei ole
enää, mutta minä toivon, että meillä nyt tulee olemaan parempi herra
kuin rouvan holhojat olivat."
*****
"Liina!"
Loppulause.
"Kuule, äiti, joku tulee ajaen!" — "Niin, se on meidän rakas
isämme, se on isä, minä näen jo Vaskan!" Näin huusivat minun
seitsenvuotias Annani ja kaksitoistavuotias Arturi ja juoksivat isäänsä
vastaan. Hän tuli eräästä maanviljelyskokouksesta. Minä jäin
odottamaan portaille, joka nyt oli kaunistettu koivuilla ja
kukkaseppeleillä ja johon illallispöytä oli valmistettu. Sieltä tulivat he
myöskin kohta, koivukäytävästä, esille ja ajoivat viheriäksi
maalatusta portista sisään. Arturi, joka oli kuin toinen Jansu, istui
kaksin reisin ystävänsä, Vaskan, seljässä. Anna taas, valkoisissa
vaatteissa, juhannuskukista ja harakankelloista tehty seppele
mustilla kiharoilla, oli rakkaan isänsä vieressä. Suurella ruohoisella
pihalla, jonka keskellä iso tammi hiljaa kohisee, pysähtyy kallein
tavarakuormani portaiden eteen. Jaani astuu kärryiltä, panee lapset
maahan. Minä käyn hänen luoksensa ja hän suutelee minua.
"Rakas Liina, elä unhota sitä, mitä jo ennen olen sinulle sanonut,
että sinä, kun olet minun tukenani ollut, olet myös kansallesi paljon
hyvää tehnyt. Mies parkoja, joilta puuttuu sellaiset tukeet! Milloinka
alkavat myös naisemme vapautua orjuuden ikeestä? Oi, Liina, puhu
tovereillesi, huuda, ehkä kuulee vielä joku heistä, jotka oman
kansansa keskuudesta ovat sekaantuneet saksalaisiin."
"Mutta nyt olen kaikki kertonut. Vatsa vaatii ruokaa ja juusto ja voi
pöydällä näyttävät niin hyviltä, että niitä täytyy ruveta syömään",
sanoi armas Jaanini. Minä istuin hänen viereensä pöydän ääreen ja
lapset meitä vastapäätä toiselle puolelle ja rupesimme syömään,
juuri kuin aurinko meni mailleen.
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