Application: The Costs of Taxation 2111
238. Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of
deadweight loss resulting from this tax is
a. $7.50.
b. $15.00.
c. $22.50.
d. $45.00.
239. Refer to Figure 8–12. Suppose a $3 per-unit tax is placed on this good. The loss of consumer
surplus resulting from this tax is
a. $35.
b. $45.
c. $70.
d. $80.
2112 Application: The Costs of Taxation
240. Refer to Figure 8–12. Suppose a $3 per-unit tax is placed on this good. The loss of producer
surplus resulting from this tax is
a. $5.50.
b. $17.50.
c. $22.50.
d. $45.00
Figure 8-13
Application: The Costs of Taxation 2113
241. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax
causes the price paid by buyers to
a. decrease by $5.
b. increase by $5.
c. increase by $3.
d. increase by $2.
242. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax
causes the price received by sellers to
a. decrease by $5.
b. decrease by $3.
c. decrease by $2.
d. increase by $5.
2114 Application: The Costs of Taxation
243. Refer to Figure 8–13. Suppose the government places a $5 per-unit tax on this good. The per-
unit burden of the tax on buyers is
a. $1.
b. $2.
c. $3.
d. $5.
244. Refer to Figure 8–13. Suppose the government places a $5 per-unit tax on this good. The per-
unit burden of the tax on sellers is
a. $1.
b. $2.
c. $3.
d. $5.
245. Refer to Figure 8–13. Suppose the government places a $5 per-unit tax on this good. The
amount of tax revenue collected by the government is
a. $120.
b. $80.
c. $50.
d. $30.
246. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The
amount of deadweight loss resulting from this tax is
a. $120.
b. $80.
c. $50.
d. $25.
247. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The
consumer surplus after this tax is
a. $80.
b. $40.
c. $30.
d. $10.
248. Refer to Figure 8–13. Suppose the government places a $5 per-unit tax on this good. The loss
of consumer surplus resulting from this tax is
a. $80.
b. $40.
c. $30.
d. $10.
Application: The Costs of Taxation 2117
249. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The
producer surplus after this tax is
a. $60.
b. $45.
c. $30.
d. $15.
250. Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss
of producer surplus resulting from this tax is
a. $60.
b. $45.
c. $30.
d. $15.
2118 Application: The Costs of Taxation
Multiple Choice – Section02: The Determinants of the Deadweight Loss
1. Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the
equilibrium quantity of bananas to shrink by the largest amount?
a. The response of buyers to a change in the price of bananas is strong, and the response of sellers
to a change in the price of bananas is weak.
b. The response of sellers to a change in the price of bananas is strong, and the response of buyers
to a change in the price of bananas is weak.
c. The response of buyers and sellers to a change in the price of bananas is strong.
d. The response of buyers and sellers to a change in the price of bananas is weak.
2. Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the
equilibrium quantity of baseball bats to shrink by the smallest amount?
a. The response of buyers to a change in the price of baseball bats is strong, and the response of
sellers to a change in the price of baseball bats is weak.
b. The response of sellers to a change in the price of baseball bats is strong, and the response of
buyers to a change in the price of baseball bats is weak.
c. The response of buyers and sellers to a change in the price of baseball bats is strong.
d. The response of buyers and sellers to a change in the price of baseball bats is weak.
Application: The Costs of Taxation 2119
3. The price elasticities of supply and demand affect
a. both the size of the deadweight loss from a tax and the tax incidence.
b. the size of the deadweight loss from a tax but not the tax incidence.
c. the tax incidence but not the size of the deadweight loss from a tax.
d. neither the size of the deadweight loss from a tax nor the tax incidence.
4. The size of the deadweight loss generated from a tax is affected by the
a. elasticities of both supply and demand.
b. elasticity of demand only.
c. elasticity of supply only.
d. total revenue collected by the government.
2120 Application: The Costs of Taxation
5. The size of a tax and the deadweight loss that results from the tax are
a. positively related.
b. negatively related.
c. independent of each other.
d. equal to each other.
6. Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part
of the tax burden, when the
a. tax is placed on the sellers of the product.
b. tax is placed on the buyers of the product.
c. supply of the product is more elastic than the demand for the product.
d. demand for the product is more elastic than the supply of the product.
Application: The Costs of Taxation 2121
7. Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part
of the tax burden, when the
a. tax is placed on the sellers of the product.
b. tax is placed on the buyers of the product.
c. supply of the product is more elastic than the demand for the product.
d. demand for the product is more elastic than the supply of the product.
8. When a tax is imposed on a good for which the supply is relatively elastic and the demand is
relatively inelastic,
a. buyers of the good will bear most of the burden of the tax.
b. sellers of the good will bear most of the burden of the tax.
c. buyers and sellers will each bear 50 percent of the burden of the tax.
d. both equilibrium price and quantity will increase.
9. When a tax is imposed on a good for which the demand is relatively elastic and the supply is
relatively inelastic,
a. buyers of the good will bear most of the burden of the tax.
b. sellers of the good will bear most of the burden of the tax.
c. buyers and sellers will each bear 50 percent of the burden of the tax.
d. the effective price paid by buyers will decrease as a result of the tax.
10. When a tax is imposed on a good for which both demand and supply are very elastic,
a. sellers effectively pay the majority of the tax.
b. buyers effectively pay the majority of the tax.
c. the tax burden is equally divided between buyers and sellers.
d. None of the above is correct; further information would be required to determine how the
burden of the tax is distributed between buyers and sellers.
11. Which of the following statements is correct regarding the imposition of a tax on gasoline?
a. The incidence of the tax depends upon whether the buyers or the sellers are required to remit
tax payments to the government.
b. The incidence of the tax depends upon the price elasticities of demand and supply.
c. The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers
are required to remit tax payments to the government.
d. The amount of tax revenue raised by the tax does not depend upon the amount of the tax per
unit.
12. When a good is taxed, the burden of the tax
a. falls more heavily on the side of the market that is more elastic.
b. falls more heavily on the side of the market that is more inelastic.
c. falls more heavily on the side of the market that is closer to unit elastic.
d. is distributed independently of relative elasticities of supply and demand.
2124 Application: The Costs of Taxation
13. The deadweight loss from a tax of $2 per unit will be smallest in a market with
a. inelastic supply and elastic demand.
b. inelastic supply and inelastic demand.
c. elastic supply and elastic demand.
d. elastic supply and inelastic demand.
14. The deadweight loss from a tax of $x per unit will be smallest in a market
a. in which demand is elastic and supply is inelastic.
b. in which demand is inelastic and supply is elastic.
c. in which demand is inelastic and supply is inelastic.
d. None of the above are correct; we need to know the value of x in order to determine the
answer.
Application: The Costs of Taxation 2125
15. The deadweight loss from a $3 tax will be largest in a market with
a. inelastic supply and elastic demand.
b. inelastic supply and inelastic demand.
c. elastic supply and elastic demand.
d. elastic supply and inelastic demand.
16. Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other
things equal, the
a. smaller is the response of quantity supplied to the tax.
b. larger is the tax burden on sellers relative to the tax burden on buyers.
c. larger is the deadweight loss of the tax.
d. All of the above are correct.
2126 Application: The Costs of Taxation
17. Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good,
other things equal,
a. the larger is the decrease in quantity demanded as a result of the tax.
b. the smaller is the tax burden on buyers relative to the tax burden on sellers.
c. the larger is the deadweight loss of the tax.
d. All of the above are correct.
Table 8-1
Market
Characteristic
A
Demand is very elastic.
B
Demand is very inelastic.
C
Supply is very elastic.
D
Supply is very inelastic.
18. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the
markets described in the table. Which of the markets will allow the government to minimize the
deadweight loss(es) from the tax?
a. market A only
b. markets A and C only
c. markets B and D only
d. market C only
Application: The Costs of Taxation 2127
19. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the
markets described in the table. Which of the markets will maximize the deadweight loss(es) from
the tax?
a. market B only
b. markets A and C only
c. markets B and D only
d. market D only
Figure 8-14
2128 Application: The Costs of Taxation
20. Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss
from a tax?
a. supply 1 and demand 1
b. supply 2 and demand 2
c. supply 1 and demand 2
d. supply 2 and demand 1
21. Refer to Figure 8-14. Which of the following combinations will maximize the deadweight loss
from a tax?
a. supply 1 and demand 1
b. supply 2 and demand 2
c. supply 1 and demand 2
d. supply 2 and demand 1
Application: The Costs of Taxation 2129
22. Refer to Figure 8-14. Which of the following statements is correct?
a. Supply 1 is more elastic than supply 2.
b. Demand 2 is more elastic than demand 1.
c. Demand 1 is more elastic than supply 1.
d. All of the above are correct.
23. Refer to Figure 8-14. Which of the following statements is not correct?
a. Supply 2 is more elastic than supply 1.
b. Demand 2 is more elastic than demand 1.
c. Supply 1 is more inelastic than supply 2.
d. Demand 2 is more inelastic than supply 2.
2130 Application: The Costs of Taxation
24. Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be
greater in the
a. first year after it is imposed than in the eighth year after it is imposed because demand and
supply will be more elastic in the first year than in the eighth year.
b. first year after it is imposed than in the eighth year after it is imposed because demand and
supply will be less elastic in the first year than in the eighth year.
c. eighth year after it is imposed than in the first year after it is imposed because demand and
supply will be more elastic in the first year than in the eighth year.
d. eighth year after it is imposed than in the first year after it is imposed because demand and
supply will be less elastic in the first year than in the eighth year.
25. The demand for chicken wings is more elastic than the demand for razor blades. Suppose the
government levies an equivalent tax on chicken wings and razor blades. The deadweight loss
would be larger in the market for
a. chicken wings than in the market for razor blades because the quantity of chicken wings would
fall by more than the quantity of razor blades.
b. chicken wings than in the market for razor blades because the quantity of razor blades would
fall by more than the quantity of chicken wings.
c. razor blades than in the market for chicken wings because the quantity of chicken wings would
fall by more than the quantity of razor blades.
d. razor blades than in the market for chicken wings because the quantity of razor blades would
fall by more than the quantity of chicken wings.