978-0132479431 Chapter 8 Part 1

1

Foundations of Microeconomics, 5e (Bade/Parkin)

Chapter 8 Taxes

8.1 Taxes on Buyers and Sellers

1) Tax incidence is the

A) burden buyers have to absorb from a tax on goods and services.

B) burden sellers have to absorb from a tax on goods and services.

C) lost revenue the government endures from goods and services that are not taxed.

D) division of the burden of a tax between the buyer and the seller.

E) deadweight loss created by a tax.

Skill: Level 1: Definition

Section: Checkpoint 8.1

Author: JC

AACSB: Reflective thinking

2) Tax incidence is the

A) dollar amount of a tax, expressed as a percentage of the purchase price.

B) dollar amount of a tax per unit sold.

C) division of a tax burden between the buyer and seller.

D) amount of revenue collected by government on a specific good.

E) deadweight loss from the tax.

Skill: Level 1: Definition

Section: Checkpoint 8.1

Author: SB

AACSB: Reflective thinking

3) The incidence of a tax refers to

A) the division of the burden of a tax between buyers and sellers.

B) the deadweight loss that a tax generates.

C) the inefficiency of a tax.

D) the revenue collected by government because of a tax.

E) the division of the burden of a tax between the public and the government.

Skill: Level 1: Definition

Section: Checkpoint 8.1

Author: SB

AACSB: Reflective thinking

2

4) If a $10 sales tax is imposed on a good and the equilibrium price increases by $10, the tax is

A) split between buyers and sellers but not evenly.

B) paid fully by sellers.

C) paid fully by buyers.

D) split evenly between buyers and sellers.

E) impossible to determine the incidence of without further information.

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: TS

AACSB: Reflective thinking

5) Sales taxes are usually collected from sellers, who view the tax as

A) resulting from a leftward of the demand curve.

B) an additional cost of selling the good.

C) an addition to the demand for the product.

D) an addition to profit.

E) the same as a rightward shift of the demand curve.

Skill: Level 2: Using definitions

Section: Checkpoint 8.1

Author: TS

AACSB: Reflective thinking

6) Imposing a sales tax on sellers of a product has an effect that is similar to which of the

following?

A) a decrease in consumers’ preferences for the good

B) an increase in the costs of production

C) an increase in demand for the good

D) a decrease in people’s willingness to work

E) Anything that decreases the demand and shifts the demand curve leftward.

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: TS

AACSB: Reflective thinking

3

7) A sales tax imposed on sellers of a good

A) decreases the demand and shifts the demand curve rightward.

B) decreases the supply and shifts the supply curve leftward.

C) decreases both the demand and the supply and shifts both the demand and supply curves

leftward.

D) decreases the supply and shifts the supply curve rightward.

E) has no effect on either the demand or the supply.

Skill: Level 2: Using definitions

Section: Checkpoint 8.1

Author: TS

AACSB: Reflective thinking

8) Suppose the government imposes a $1 per gallon per gallon tax on sellers of gasoline. As a

result, the

A) supply curve shifts leftward.

B) supply curve shifts rightward.

C) demand curve shifts leftward.

D) demand curve shifts rightward.

E) demand and supply curves both shift leftward.

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: SA

AACSB: Reflective thinking

9) If a good has a tax levied on it, sellers respond to the price that excludes the tax and not the

price with the tax because

A) the tax is handed over to the state directly by buyers.

B) sellers do not get to keep the tax revenue.

C) the demand for the good has decreased.

D) the quantity supplied of the good increases.

E) demanders pay none of the tax.

Skill: Level 2: Using definitions

Section: Checkpoint 8.1

Author: TS

AACSB: Reflective thinking

4

10) The elasticity of demand for a good is 1 and the elasticity of supply is 0.8. Thus, imposing a

tax on the good ________ the price kept by sellers and ________ the price paid by buyers.

A) raises; raises

B) raises; lowers

C) lowers; raises

D) lowers; lowers

E) does not change; raises

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: MR

AACSB: Analytical reasoning

11) Neither the demand nor the supply of gasoline is perfectly elastic or inelastic. When the

government increases the federal tax on gasoline, the effect on buyers is that the price of gasoline

A) rises.

B) falls.

C) does not change.

D) rises if the demand is inelastic and falls if the demand is elastic.

E) rises if the supply is inelastic and falls if the supply is elastic.

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: JC

AACSB: Analytical reasoning

12) The demand curve for pizza is downward sloping and the supply curve is upward sloping. If

the government imposes a $2 tax on a pizza, ________ the tax.

A) only consumers pay

B) only producers pay

C) both producers and consumers pay

D) neither producers nor consumers pay

E) the government pays

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: CD

AACSB: Analytical reasoning

5

13) Neither the demand nor the supply of automobiles is perfectly elastic or inelastic. If the

government imposes a $1,000 tax on automobiles, then the price of an automobile

A) increases by $1,000.

B) increases by less than $1,000.

C) increases by more than $1,000.

D) decreases by $1,000.

E) does not change.

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: SA

AACSB: Analytical reasoning

14) Neither the demand nor the supply of sugar is perfectly elastic or inelastic. If the government

imposes a 5 percent tax on sugar, the

A) price of sugar falls by 5 percent.

B) price of sugar increases by less than 5 percent.

C) price of sugar does not change.

D) quantity of sugar increases.

E) price of sugar rises by 5 percent.

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: SA

AACSB: Analytical reasoning

15) Giving in to the demand of protestors, suppose the French government reduces the tax on

gasoline by 15 percent. Neither the demand for gasoline nor the supply of gasoline is perfectly

elastic or inelastic. As a result of the tax cut, the price for a gallon of gasoline paid by buyers

A) falls by 15 percent.

B) rises by 15 percent.

C) falls by less than 15 percent.

D) rises by less than 15 percent.

E) falls by more than 15 percent.

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: SA

AACSB: Analytical reasoning

6

16) To calculate the revenue government receives when a tax is imposed on a good, multiply the

A) pre-tax equilibrium price by the pre-tax quantity.

B) after-tax equilibrium price by the after-tax quantity.

C) tax by the pre-tax quantity.

D) tax by the after-tax quantity.

E) after-tax equilibrium price by the after-tax quantity and then subtract the pre-tax equilibrium

price multiplied by the pre-tax quantity.

Skill: Level 2: Using definitions

Section: Checkpoint 8.1

Author: SB

AACSB: Analytical reasoning

17) The imposition of a tax on a good enables the government to

A) raise the price received by sellers of the goods that have been taxed.

B) lower the price paid by buyers for the goods that have been taxed.

C) create a more efficient economic system.

D) take part of consumer and producer surplus as tax revenue when the good is purchased.

E) decrease the deadweight loss in this market.

Skill: Level 3: Using models

Section: Checkpoint 8.1

Author: TS

AACSB: Reflective thinking

7

18) In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the

A) buyers and sellers equally share the incidence of the tax.

B) shaded area is the deadweight loss from the tax.

C) shaded area is the tax revenue from the tax.

D) Both answers A and B are correct.

E) Both answers A and C are correct.

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: SA

AACSB: Analytical reasoning

19) In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the tax

revenue collected by the government equals

A) $240.

B) $320.

C) $160.

D) $120.

E) $4.

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: SA

AACSB: Analytical reasoning

8

20) The above figure shows the market for gourmet ice cream. In effort to reduce obesity,

government places a $2 tax per gallon on suppliers in this market, shifting the supply curve from

S0 to S1. The quantity of ice cream consumed before the tax is ________ gallons and the

quantity consumed after the tax is ________ gallons.

A) 300,000; 200,000

B) 200,000; 250,000

C) 250,000; 200,000

D) 200,000; 300,000

E) 200,000; 200,000

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: KG

AACSB: Analytical reasoning

9

21) The above figure shows the market for gourmet ice cream. In effort to reduce obesity,

government places a $2 tax per gallon on suppliers in this market, shifting the supply curve from

S0 to S1. The total tax revenue is equal to

A) $400,000.

B) $800,000.

C) $500,000.

D) $200,000.

E) More information is needed to determine the total tax revenue.

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: KG

AACSB: Analytical reasoning

22) The above figure shows the market for gourmet ice cream. In effort to reduce obesity,

government places a $2 tax per gallon on suppliers in this market, shifting the supply curve from

S0 to S1. The tax incidence is

A) split equally between consumers and producers, each paying $1 per gallon.

B) split equally between consumers and producers, each paying $2 per gallon.

C) such that consumers pay $2 per gallon and producers pay $1 per gallon.

D) such that consumers pay $1 per gallon and producers pay $2 per gallon.

E) such that producers pay all of the tax.

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: KG

AACSB: Analytical reasoning

10

23) The above figure shows the market for buckets of golf balls at the driving range. A new

leisure time tax is placed on suppliers in this market, shifting the supply curve from S0 to S1.

The amount of this tax is ________ per bucket of golf balls.

A) $4

B) $2

C) $2.50

D) $1

E) $3

Skill: Level 4: Applying models

Section: Checkpoint 8.1

Author: KG

AACSB: Analytical reasoning