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81
Copyright © 2011 Pearson Education, Inc.
The figure above shows the market for MP3 players, where S is the supply curve and D is the
demand curve before any tax is imposed. The government imposes a $10 per unit tax on sellers
of MP3 players.
7) Based on the figure above, after the tax is imposed, the price paid by the buyer is ________
per MP3 player.
A) $105
B) $100
C) $95
D) $110
E) $90
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
82
Copyright © 2011 Pearson Education, Inc.
8) Based on the figure above, after the tax is imposed, the price received (and kept) by the seller
is ________ per MP3 player.
A) $95
B) $105
C) $100
D) $110
E) $90
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
9) Based on the figure above, the tax ________ the price paid by the buyer by ________ per
MP3 player.
A) raises; $5
B) lowers; $5
C) raises; $10
D) lowers; $10
E) raises; $7.50
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
10) Based on the figure above, the tax ________ the price received (and kept) by the seller by
________ per MP3 player.
A) lowers; $5
B) raises; $5
C) raises; $10
D) lowers; $10
E) lowers; $2.50
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
83
Copyright © 2011 Pearson Education, Inc.
11) Based on the figure above, after the tax is imposed, the government collects tax revenue of
________ a week.
A) $20,000
B) $10,000
C) $50,000
D) $60,000
E) $40,000
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
12) Based on the figure above, the burden of the tax
A) is split equally between the buyer and the seller.
B) falls mostly on buyers.
C) falls mostly on sellers.
D) falls entirely on buyers.
E) falls entirely on sellers.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
84
Copyright © 2011 Pearson Education, Inc.
The figure above shows the market for MP3 players, where S is the supply curve and D is the
demand curve before any tax is imposed. The government imposes a $10 per unit tax on sellers
of MP3 players.
13) In the figure above, at the market equilibrium with the tax, marginal benefit ________
marginal cost, and the quantity of MP3 players sold is ________.
A) exceeds; inefficient
B) is below; inefficient
C) is below; efficient
D) exceeds; efficient
E) equals; efficient
Skill: Level 2: Using definitions
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
85
Copyright © 2011 Pearson Education, Inc.
14) Based on the figure above, the deadweight loss from the tax is
A) $15,000 per week.
B) $20,000 per week.
C) $35,000 per week.
D) $17,500 per week.
E) zero.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
15) Based on the figure above, after the tax is imposed the consumer surplus
A) decreases by $17,500.
B) increases by $17,500.
C) decreases by $7,500.
D) increases by $7,500.
E) does not change.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
86
Copyright © 2011 Pearson Education, Inc.
The figure above shows the demand (D) and supply (S) curves for insulin before any tax is
imposed. The government imposes a $0.20 a dose tax on sellers of insulin.
16) After the tax is imposed, the price paid by the buyer is ________, and the price received (and
kept) by the seller is ________.
A) $2.20; $2.00
B) $2.00; $2.20
C) $2.00; $2.00
D) $2.20; $2.20
E) $2.00; $1.80
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
17) Based on the figure above, at the market equilibrium with the tax, marginal benefit ________
marginal cost, and the quantity of insulin sold is ________.
A) equals; efficient
B) exceeds; inefficient
C) is below; inefficient
D) is below; efficient
E) exceeds; efficient
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
87
Copyright © 2011 Pearson Education, Inc.
8.5 Integrative Questions
1) The phrase "tax incidence" refers to
A) how easy it is to evade the tax.
B) how taxes redistribute income.
C) the degree of progressiveness or regressiveness of the tax.
D) who actually bears the burden of paying the tax.
E) how much the government collects in revenue from a tax.
Skill: Level 1: Definition
Section: Integrative
Author: PH
AACSB: Reflective thinking
2) If the demand curve for hamburgers is downward sloping and the supply curve for
hamburgers is upward sloping, then a tax imposed on hamburgers ________ the price paid by
buyers and ________ the price received and kept by sellers.
A) raises; raises
B) raises; lowers
C) lowers; raises
D) lowers; lowers
E) does not change; does not change
Skill: Level 2: Using definitions
Section: Integrative
Author: MR
AACSB: Analytical reasoning
3) We can see the inefficiencies created by a sales tax because
A) a deadweight loss occurs.
B) the tax creates an excess burden.
C) at the quantity produced, marginal benefit equals marginal cost.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Skill: Level 2: Using definitions
Section: Integrative
Author: CD
AACSB: Reflective thinking
88
Copyright © 2011 Pearson Education, Inc.
4) If neither the demand nor the supply for goods or labor is perfectly inelastic, then a sales tax
on a good ________ a deadweight loss and an income tax ________ a deadweight loss.
A) creates; creates
B) creates; does not create
C) does not create; create
D) does not create; does not create
E) might create; might create
Skill: Level 3: Using models
Section: Integrative
Author: MR
AACSB: Reflective thinking
5) Which of the following is true?
i. A tax on buyers has the same effect as the same sized tax on sellers.
ii. The more elastic the demand, the larger is the share of the tax paid by the buyers.
iii. The U.S. income tax is regressive.
A) Only i
B) Only ii
C) Only iii
D) ii and iii
E) i and ii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
6) Which of the following is true?
i. If supply is perfectly inelastic, the tax creates no deadweight loss.
ii. The elasticities of supply and demand, not Congress, determine who pays the income tax.
iii. A tax is progressive if the average tax rate falls with income.
A) Only i
B) Only ii
C) Only iii
D) ii and iii
E) i and ii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
89
Copyright © 2011 Pearson Education, Inc.
7) Which of the following is true?
i. If demand is perfectly elastic, the tax creates no deadweight loss.
ii. The more elastic the supply of a factor of production, the greater is the deadweight loss from
an income tax.
iii. A tax is regressive if the average tax rate rises with income.
A) Only i
B) Only ii
C) Only iii
D) ii and iii
E) i and ii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
90
Copyright © 2011 Pearson Education, Inc.
8) The figure above shows the impact of an income tax. The deadweight loss created by the
income tax equals area
A) bce.
B) fed.
C) acf.
D) feba.
E) The question errs because an income tax does not create a deadweight loss.
Skill: Level 4: Applying models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
