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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
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.
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
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.
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
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
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.