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11
Copyright © 2011 Pearson Education, Inc.
24) 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 tax incidence is
A) split equally between consumers and producers, each paying $1 per bucket.
B) split equally between consumers and producers, each paying $2 per bucket.
C) such that consumers pay $2 per bucket and producers pay $1 per bucket.
D) such that consumers pay $1 per bucket and producers pay $2 per bucket.
E) such that producers pay all of the tax.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
25) 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 total tax revenue is equal to
A) $1,800.
B) $600.
C) $1,200.
D) $900.
E) $5,600.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
26) 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 quantity of buckets without the tax is ________ and the quantity with the tax is ________.
A) 400; 600
B) 600; 400
C) 400; 400
D) 800; 500
E) 600; 500
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
12
Copyright © 2011 Pearson Education, Inc.
27) The figure above shows the market for tires. The figure shows that the government has
imposed a tax of ________ per tire.
A) $10
B) $30
C) $40
D) $60
E) None of the above answers is correct.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: CD
AACSB: Analytical reasoning
28) The figure above shows the market for tires. The figure shows that the government has
imposed a tax of ________ per tire and that ________ pay most of the tax.
A) $30; buyers
B) $40; buyers
C) $30; sellers
D) $60; sellers
E) $60; buyers
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: CD
AACSB: Analytical reasoning
13
Copyright © 2011 Pearson Education, Inc.
29) The figure above shows the market for tires. The government has imposed a tax on tires, and
the buyers pay ________ of the tax.
A) $10
B) $20
C) $50
D) $60
E) $30
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: CD
AACSB: Analytical reasoning
30) The figure above shows the market for tires. The government has imposed a tax on tires, and
the sellers pay ________ of the tax.
A) $10
B) $20
C) $50
D) $60
E) $30
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: CD
AACSB: Analytical reasoning
31) The figure above shows the market for tires. According to the figure, the government collects
________ per month in total tax revenue
A) $600 million
B) $1,200 million
C) $2,000 million
D) $900 million
E) None of the above answers is correct.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: CD
AACSB: Analytical reasoning
14
Copyright © 2011 Pearson Education, Inc.
32) The figure above shows the market for tires. According to the figure, the price elasticity of
demand is ________ the price elasticity of supply.
A) greater than
B) equal to
C) less than
D) not comparable to
E) More information is needed to determine if the price elasticity of demand is greater than,
equal to, less than, or comparable to the price elasticity of supply.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: MR
AACSB: Analytical reasoning
33) For a given supply elasticity, the more inelastic the demand for a good, the larger the share of
the tax paid by the
A) buyers.
B) sellers.
C) participants other than the buyers and sellers.
D) government.
E) None of the above answers is correct.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: JC
AACSB: Reflective thinking
34) If a tax is placed on suppliers of a good, then the incidence of the tax
A) falls more on the suppliers if demand is elastic.
B) falls more on the suppliers if demand is inelastic.
C) is usually split equally between the consumers and the producers.
D) usually falls more on the producers than the consumers.
E) usually falls more on the consumers than the producers.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: KG
AACSB: Reflective thinking
15
Copyright © 2011 Pearson Education, Inc.
35) Suppose that the elasticity of demand for insulin is 0.1, the elasticity of demand for oranges
is 1.2, and the elasticity of supply for insulin and oranges is 0.4. If the government imposes a 10
percent tax on both insulin and oranges, the decrease in the quantity of oranges is ________ the
decrease in the quantity of insulin.
A) larger than
B) smaller than
C) equals to
D) not comparable to
E) More information is needed to determine how the decrease in the quantity of oranges
compares to the decrease in the quantity of insulin.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: MR
AACSB: Reflective thinking
36) The demand for insulin is quite inelastic. The demand for Pepsi is quite elastic. Suppose the
elasticity of supply for insulin is the same as the elasticity of supply for Pepsi. If a $0.20 tax was
imposed on each of these goods (holding everything else constant), which consumers would pay
more of the tax?
A) the Pepsi consumers
B) the insulin consumers
C) There would be no difference in the amount of tax paid by the consumers.
D) More information is needed to determine which consumers pay more of the tax.
E) The premise of the question is wrong because the elasticity of demand and the incidence of a
tax are not related.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
37) The demand for gasoline is inelastic and the supply of gasoline is elastic. Therefore,
A) sellers bear most of the incidence of a tax on gasoline.
B) buyers bear most of the incidence of a tax on gasoline.
C) the government bears most of the incidence of a tax on gasoline.
D) the incidence of a tax on gasoline depends if the tax is imposed on sellers or on buyers.
E) None of the above answers is correct.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: TS
AACSB: Reflective thinking
16
Copyright © 2011 Pearson Education, Inc.
38) The buyers pay all of a tax when the demand is
A) perfectly elastic.
B) more elastic than the supply.
C) more inelastic than the supply.
D) unit elastic.
E) perfectly inelastic.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
39) If the demand curve for a good is horizontal, a tax is levied on this product is
A) split between the buyers and the sellers but not evenly so that either the buyer or the seller
pays more.
B) split evenly between the buyers and the sellers.
C) paid entirely by buyers.
D) paid entirely by sellers.
E) not paid by either the buyers or the sellers.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: TS
AACSB: Reflective thinking
40) Suppose the demand for specialty car license plates is perfectly inelastic and the supply
curve for specialty license plates is upward sloping. A tax is imposed on specialty license plates.
Which of the following is true?
A) Drivers pay the smallest share of the tax.
B) Drivers pay none of the tax.
C) Drivers pay all of the tax.
D) The government pays all of the tax.
E) The government collects nothing in tax revenues.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: JC
AACSB: Reflective thinking
17
Copyright © 2011 Pearson Education, Inc.
41) Suppose the elasticity of demand for a product is 0 and elasticity of supply is 1. If the
government imposes a tax on the product, then
A) buyers and sellers pay exactly the same share of the tax.
B) buyers pay all of the tax.
C) sellers pay all of the tax.
D) buyers pay a smaller share of the tax than do sellers but both buyers and sellers pay some of
the tax.
E) because the elasticity of demand is zero, the government collects no revenue from this tax.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
42) Suppose the demand for Georgia peaches is perfectly elastic. If the supply curve is upward
sloping and a tax is imposed on Georgia peaches, then
A) peach sellers pay all of the tax.
B) peach buyers pay all of the tax.
C) peach buyers and sellers evenly split the tax.
D) the government does not collect any revenue from the tax.
E) the tax does not change the equilibrium quantity of peaches.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: JC
AACSB: Reflective thinking
43) If consumers pay more of a tax than do the producers,
A) demand is more elastic than supply.
B) the amount of tax revenue collected by the government is almost zero.
C) supply is more elastic than demand.
D) the equilibrium price paid by consumers rises by less than half the amount of the tax.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CD
AACSB: Reflective thinking
18
Copyright © 2011 Pearson Education, Inc.
44) If the supply of automobiles becomes more inelastic, then a tax on automobiles is
A) paid more by the buyers after the change than before.
B) paid more by the sellers after the change than before.
C) always split evenly between the buyers and the sellers.
D) paid more by the government after the change than before.
E) always paid entirely by the buyers.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: JC
AACSB: Reflective thinking
45) For a given elasticity of demand, the less elastic the supply, the
A) larger the deadweight loss from a tax.
B) larger the share of a tax paid by the sellers.
C) greater the burden on the government from a tax.
D) greater is the excess burden from a tax.
E) larger the share of a tax paid by the buyers.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
46) Sellers bear the entire incidence of a tax on a good. This outcome can occur if
A) supply is perfectly inelastic.
B) the good is an inferior good.
C) demand is perfectly inelastic.
D) the demand curve is downward sloping and the supply curve is upward sloping.
E) supply is perfectly elastic.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: TS
AACSB: Reflective thinking
19
Copyright © 2011 Pearson Education, Inc.
47) Why do suppliers pay all of a tax when supply is perfectly inelastic?
A) Because a perfectly inelastic supply means that the demand is elastic.
B) Because the government requires firms to collect the tax.
C) Because a perfectly inelastic supply means that the quantity supplied is quite sensitive to a
change in price.
D) Because a perfectly inelastic supply means that suppliers will produce the same amount
regardless of the price.
E) Because in this case the price of the good that suppliers receive and keep does not change.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
48) Suppose the elasticity of supply of land is 0 and elasticity of demand is 2. If the government
imposes a 10 percent tax on land, then
A) buyers and sellers each pay 5 percent of the tax.
B) buyers pay all of the tax.
C) sellers pay all of the tax.
D) sellers pay a smaller share of the tax than do buyers but both buyers and sellers pay some of
the tax.
E) buyers pay 1/2 of the tax.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: SA
AACSB: Analytical reasoning
49) The supply of sand is perfectly inelastic and the demand curve for sand is downward sloping.
Hence, if a tax on sand is imposed,
A) sand buyers pay the entire tax.
B) sand sellers pay the entire tax.
C) the tax is split evenly between the buyers and sellers.
D) the government pays the entire tax.
E) the government collects no tax revenue because the supply is perfectly inelastic.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: JC
AACSB: Reflective thinking
20
Copyright © 2011 Pearson Education, Inc.
50) Suppose the supply of apartments in Minneapolis is perfectly elastic. The effect of a $100
per month tax on all apartments is that
A) landlords pay none of the tax and there is a surplus of apartments.
B) landlords pay all of the tax and suffer all of the deadweight loss.
C) landlords pay all of the tax and no changes take place in the quantity of apartments supplied.
D) renters pay all of the tax.
E) the government collects no tax revenue because the supply is perfectly elastic.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: JC
AACSB: Reflective thinking
51) If the government eliminates a tax on a good with a perfectly elastic supply, who benefits
most?
A) buyers
B) sellers
C) buyers if the demand is also perfectly elastic, otherwise sellers
D) buyers if the demand is unit elastic, otherwise sellers
E) buyers and sellers benefit equally
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
52) If the elasticity of demand for a product equals 3 and the supply is perfectly elastic, then if a
tax is imposed on this product,
A) the buyer pays all the tax.
B) the seller pays all the tax.
C) the buyer pays 3/4 of the tax.
D) the seller pays 3/4 of the tax.
E) the buyer pays 4/3 of the tax.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: SA
AACSB: Analytical reasoning
