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.
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.
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.
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.
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
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
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.
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.
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.
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.
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.
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.
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
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
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
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
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
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.
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.
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
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
74) 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 received and kept by sellers and a
________ in the price paid by buyers.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
E) no change; rise
75) Suppose the demand for barley is perfectly elastic. The supply curve of barley is upward
sloping. If a tax is imposed on barley,
A) barley sellers pay the entire tax.
B) barley buyers pay the entire tax.
C) the government pays the entire tax.
D) the tax is split evenly between barley buyers and sellers.
E) who pays the tax depends on whether the government imposes the tax on barley sellers or on
barley buyers.
76) The demand for apple pies is perfectly elastic. If the government taxes apple pies at $1 a pie,
then ________.
A) the seller pays the entire tax
B) the buyer pays the entire tax
C) the seller and the buyer split the tax evenly
D) the seller and the buyer split the tax but the seller pays more
E) who pays the tax depends on whether the government imposes the tax on pie buyers or on pie
sellers
77) At harvest time the supply of wheat is perfectly inelastic. If the government taxes wheat at $1
a bushel, then
A) the seller pays the entire tax.
B) the buyer pays the entire tax.
C) the seller and the buyer split the tax evenly.
D) the seller and the buyer split the tax but the seller pays more.
E) no one pays the tax because the wheat must be harvested or it will go to waste.
78) To determine who bears the greater share of a tax, we compare the
A) number of buyers to the number of sellers.
B) elasticity of supply to the elasticity of demand.
C) size of the tax to the price of the good.
D) government tax revenue to the revenue collected by the suppliers.
E) pre-tax quantity to the post-tax quantity.
79) The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how
will the tax be divided between the buyer and seller?
A) The seller will pay more of the tax than the buyer pays.
B) The buyer will pay more of the tax than the seller pays.
C) The seller and buyer will split the tax evenly.
D) The seller will pay the entire tax.
E) The buyer will pay the entire tax.
80) The buyer will pay the entire tax levied on a good when the demand for the good is
________ or when the supply of the good is ________.
A) perfectly elastic; perfectly inelastic
B) perfectly elastic; perfectly elastic
C) perfectly inelastic; perfectly inelastic
D) perfectly inelastic; perfectly elastic
E) unit elastic; unit elastic
81) A sales tax imposed on tires ________ consumer surplus and ________ producer surplus.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
82) If a tax is placed on tires, then
i. the equilibrium quantity of tires will decrease.
ii. a deadweight loss will be created.
iii. the producer surplus will decrease.
A) i only
B) ii only
C) i and iii
D) i and ii
E) i, ii, and iii
83) The deadweight loss from a tax is called the
A) marginal benefit of the tax.
B) marginal cost of the tax.
C) excess burden of the tax.
D) net gain from taxation.
E) net loss from taxation.
84) The graph shows the market for cell phones. The government imposes a sales tax on cell
phones at $10 a cell phone. The excess burden of the sales tax on cell phones is ________.
A) $20,000
B) $15,000
C) $35,000
D) $7,500
E) $30,000
85) A sales tax creates a deadweight loss because
A) there is some paperwork opportunity cost of sellers paying the sales tax.
B) demand and supply both decrease.
C) less is produced and consumed.
D) citizens value government goods less than private goods.
E) the government spends the tax revenue it collects.
8.2 Income Tax and Social Security Tax
1) If we look at the percentage of total tax revenue collected by different taxes in the United
States, we see that
A) personal income taxes are the largest.
B) Social Security taxes are the largest.
C) excise taxes, while not the largest, are second only to Social Security taxes.
D) sales taxes are the smallest.
E) corporate income taxes are by far the largest.
2) The largest percentage of the government’s tax revenue received comes from
A) personal income taxes.
B) property taxes.
C) social security taxes.
D) sales taxes.
E) excise taxes.
3) Which of the following types of taxes generates the most revenue for governments in the
United States?
A) Social Security tax
B) personal income tax
C) property tax
D) sales tax
E) excise tax
4) For the United States, which tax is the single biggest source of tax revenue?
A) Social Security tax
B) sales tax
C) property tax
D) personal income tax
E) corporation income tax
5) Taxes on corporate profit are a type of ________ tax.
A) sales
B) property
C) income
D) regressive
E) selling
6) Income taxes are taxes
A) paid only by private individuals who earn income.
B) paid on personal income and corporate profits.
C) paid when we make purchases at a store.
D) that include taxes paid to register a car.
E) paid only by people on their personal incomes.
7) The percentage of an additional dollar that is paid in tax is called
A) the average tax rate.
B) the marginal tax rate.
C) a proportional tax.
D) a progressive tax.
E) a regressive tax.
8) The marginal tax rate equals 100 ×
A) (total tax ÷ change in income).
B) (change in tax ÷ total income).
C) (total tax ÷ total income).
D) (change in tax ÷ change in income).
E) (average tax rate × total income)
9) The marginal tax rate is the
A) average amount paid as taxes.
B) percentage of total income that is paid in tax.
C) percentage of an additional dollar of income paid in tax.
D) total amount of tax paid as a percentage of total income earned.
E) same as the average tax rate for a progressive tax.
10) Which of the following is correct?
A) If your income is $20,000 and you are paying $2,000 in taxes, your marginal tax rate is 10
percent.
B) If your income is $20,000 and you are paying $2,000 in income taxes, the income tax you are
paying is progressive.
C) If you paid $0.39 as tax from an additional dollar you earned, your marginal tax rate is 39
percent.
D) If your marginal tax rate falls as your income increases, the tax is progressive.
E) If your income is $20,000 and you are paying $2,000 in income taxes, the income tax you are
paying is proportional.
11) ________ tax rate equals ________.
A) A marginal; the percentage of total income that is paid in tax
B) A progressive; the percentage of an additional dollar of income that is paid in tax
C) An average; the percentage of total income that is paid in tax
D) A regressive; the percentage of an additional dollar of income that is paid in tax
E) A proportional; the percentage of total income that is paid in tax
12) The average tax rate is the
A) percentage of an additional dollar of income paid in tax.
B) percentage of income paid in tax.
C) total amount of taxes paid by an individual.
D) average of the rates at which income and taxes increase.
E) same as the marginal tax rate for a progressive tax.