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Exam 8: Application: the Costs of Taxation

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Question 241

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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.

E) C) and D)
F) B) and D)

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Question 242

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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.

E) A) and B)
F) None of the above

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Question 243

Multiple Choice

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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

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?

A tax raises the price received by sellers and lowers the price paid by buyers.

A tax on a good causes the size of the market to shrink.

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

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

Figure 8-19 The vertical distance between points A and B represents the original tax. -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 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

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how much tax revenue will be collected from this tax?

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.

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

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how much will be the deadweight loss from this tax?

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

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

Figure 8-12 -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

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The producer surplus with the tax is

When the government imposes taxes on buyers or sellers of a good, society