21
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53) The loss to society resulting from a tax includes the
A) deadweight loss.
B) consumer surplus paid to the government in the form of tax revenue.
C) producer surplus paid to the government in the form of tax revenue.
D) deadweight loss plus the consumer surplus and producer surplus paid to the government as
tax revenue.
E) deadweight loss minus the tax revenue collected by the government.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
54) The inefficiency of a sales tax on a good is ultimately the result of the
A) low tax revenue earned by the government relative to the cost of collection.
B) wedge between what buyers pay for the good and what sellers receive for the good.
C) buyers being unable to avoid paying the tax.
D) sellers being unable to avoid paying the tax.
E) increase in the consumer surplus that is more than offset by the decrease in the producer
surplus.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: TS
AACSB: Reflective thinking
55) A tax
A) places a wedge between the price paid by the buyers and the price received by the sellers.
B) reduces consumer surplus and producer surplus.
C) decreases government spending.
D) Both answers A and B are correct.
E) None of the above answers are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
22
Copyright © 2011 Pearson Education, Inc.
56) When a tax is imposed on a good, at the after-tax equilibrium the marginal benefit of the last
unit produced ________ the marginal cost.
A) equals
B) is greater than
C) is less than
D) can be calculated but is not comparable to
E) The premise of the question is incorrect because after a tax is imposed, it becomes impossible
to determine the marginal benefit and the marginal cost.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
57) When a tax is imposed on a good or a service, the marginal benefit of the last unit bought
________ the marginal cost of the last unit.
A) is equal to
B) is greater than
C) is less than
D) None of the above answers is correct because there is no consistent relationship between the
marginal benefit of the last unit and its marginal cost.
E) is not able to be compared to
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
58) If neither the demand nor supply of a good is perfectly elastic or inelastic, a tax on the good
________ consumer surplus and ________ producer surplus.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases
E) decreases; does not change
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SB
AACSB: Reflective thinking
23
Copyright © 2011 Pearson Education, Inc.
59) When a product is taxed,
A) part of the initial consumer surplus goes to the government as revenue.
B) part of the initial consumer surplus becomes a deadweight loss.
C) the producer surplus never changes because consumers pay taxes, not producers.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
60) The size of the deadweight loss, or excess burden, of a tax depends on the
A) amount of producer surplus but not the amount of consumer surplus because it is the
producers who send the tax revenues to the government.
B) strength of demand.
C) strength of supply.
D) elasticities of demand and supply.
E) number of demanders and the number of suppliers.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: TS
AACSB: Reflective thinking
61) When a tax is imposed on a good or service, the
A) revenue gained by the government is the excess burden.
B) deadweight loss that arises from a tax is the excess burden.
C) share of the tax paid by the buyer is the excess burden.
D) share of the tax paid by the seller is the excess burden.
E) amount the government collects as tax revenue is the deadweight loss from the tax.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
24
Copyright © 2011 Pearson Education, Inc.
62) The excess burden of a tax refers to the fact that
A) the benefits from a tax exceed the tax revenue.
B) the deadweight loss from a tax exceeds the remaining consumer surplus.
C) marginal cost is greater than marginal benefit after the tax.
D) a tax creates a deadweight loss.
E) taxes are split between buyers and sellers.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: CD
AACSB: Reflective thinking
63) The deadweight loss from a tax
A) is the tax revenue the government collects when people die.
B) is the split of a tax between the amount paid and the amount collected.
C) equals the amount collected as revenue from the tax.
D) is called the excess burden of the tax.
E) equals the amount collected as revenue from the tax plus the excess burden of the tax.
Skill: Level 1: Definition
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
64) The deadweight loss of a tax
A) is the transfer of income from households to the government.
B) determines the incidence of a tax.
C) is part of the total burden of a tax.
D) is greater than the total burden of a tax.
E) equals the tax revenue collected by the government.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: SA
AACSB: Reflective thinking
25
Copyright © 2011 Pearson Education, Inc.
65) Suppose the elasticity of demand for Mexican food is 3.00 and the elasticity of supply is
1.20. If the government imposes a sales tax on Mexican food, which of the following occurs?
i. Less Mexican food is purchased by buyers.
ii. Less Mexican food is produced by sellers.
iii. The government receives the excess burden as revenue.
iv. Both the consumer and the producer surplus decrease.
A) i and ii
B) iii only
C) i, ii, and iv
D) iv only
E) i, ii, iii, and iv
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Author: TS
AACSB: Analytical reasoning
26
Copyright © 2011 Pearson Education, Inc.
66) The above figure shows the demand curves in four different markets. If each of the markets
has an identical upward sloping supply curve and the same tax is levied on suppliers, which
market would produce the smallest amount of deadweight loss?
A) A
B) B
C) C
D) D
E) C and D
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
27
Copyright © 2011 Pearson Education, Inc.
67) The above figure shows the demand curves in four different markets. If each of the markets
has an identical upward sloping supply curve and the same tax is levied on suppliers, which
market would produce the largest amount of deadweight loss?
A) A
B) B
C) C
D) D
E) C and D
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
28
Copyright © 2011 Pearson Education, Inc.
68) The above figure shows the supply curves in four different markets. If each of the markets
has an identical downward sloping demand curve and the same tax is levied on suppliers, which
market would produce the smallest amount of deadweight loss?
A) A
B) B
C) C
D) D
E) A and D
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
29
Copyright © 2011 Pearson Education, Inc.
69) The above figure shows the supply curves in four different markets. If each of the markets
has an identical downward sloping demand curve and the same tax is levied on suppliers, which
market would produce the largest amount of deadweight loss?
A) A
B) B
C) C
D) D
E) A and D
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: KG
AACSB: Analytical reasoning
70) Tax incidence refers to
A) how government taxes are spent by the government.
B) the incidences of tax revolts by the taxpayers.
C) the amount of a tax minus its burden.
D) the division of the burden of a tax between the buyer and the seller.
E) tax revenue minus excess burden.
Skill: Level 1: Definition
Section: Checkpoint 8.1
Author: STUDY GUIDE
AACSB: Reflective thinking
71) If a $1 sales tax is imposed on the sale of a CD, and neither the demand nor the supply is
perfectly elastic or perfectly inelastic, then the price of a CD paid by consumers will
A) increase by $1 and fewer CDs will be bought.
B) increase by less than $1 and fewer CDs will be bought.
C) not change and the same number of CDs will be bought.
D) increase by $1 and the same number of CDs will be bought.
E) increase by more than $1 and fewer CDs will be bought.
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: MyEconLab Web Site
AACSB: Analytical reasoning
30
Copyright © 2011 Pearson Education, Inc.
72) Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic. So,
imposing a tax on the good results in a ________ in the price paid by buyers and ________ in
the equilibrium quantity.
A) rise; an increase
B) rise; a decrease
C) fall; an increase
D) fall; a decrease
E) a rise; no change
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: STUDY GUIDE
AACSB: Reflective thinking
73) The graph shows the market for textbooks. If the government introduces a tax of $20 a
textbook, then the price paid by buyers ________.
A) increases by $20
B) increases to $80 a textbook
C) decreases to $60 a textbook
D) is $70 a textbook
E) does not change because the demand for textbooks is perfectly elastic
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: MyEconLab Web Site
AACSB: Analytical reasoning