Economics Chapter 14 Module 14 – The Benefits And Cost Of Taxation Figure And Table The Market For Taxi

subject Type Homework Help
subject Pages 35
subject Words 7559
subject Authors Paul Krugman, Robin Wells

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Page 1
1.
Suppose the government imposes a $10 excise tax on the sale of sweaters by charging
suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the
supply curve is upward-sloping:
A)
the price of sweaters will increase by $10.
B)
consumers of sweaters will bear the entire burden of the tax.
C)
the price of sweaters will increase by less than $10.
D)
the price of sweaters will decrease by $10.
2.
An excise tax that the government collects from the producers of a good:
A)
shifts the supply curve upward.
B)
reduces revenue for the government.
C)
has an effect similar to that of a tax subsidy.
D)
shifts the supply curve downward.
3.
Recently, the government considered adding an excise tax on CDs that can be used to
record music and CD players that can record discs. If this tax were enacted, the most
likely effect would be:
A)
that consumers would pay a higher price and producers would sell fewer of these
CDs and CD players than before the tax.
B)
no change in consumption or the prices paid by consumers of these CDs and CD
players.
C)
that consumers would pay a lower price and producers would receive a higher price
for these CDs and CD players than before the tax.
D)
an increase in economic activity due to the tax.
4.
If an excise tax is imposed on automobiles and collected from consumers, the:
A)
demand curve will shift downward by the amount of the tax.
B)
supply curve will shift upward by the amount of the tax.
C)
equilibrium quantity supplied will increase relative to the pretax level.
D)
equilibrium quantity demanded will increase relative to the pretax level.
5.
The incidence of a tax:
A)
is a measure of the revenue the government receives from it.
B)
refers to who writes the check to the government.
C)
refers to how much of the tax is actually paid by consumers and producers.
D)
is a measure of the deadweight loss from the tax.
Page 2
Use the following to answer questions 6-9:
6.
(Ref 14-1 Table: The Market for Fried Twinkies) Use Table 14-1: The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie
and collect that tax from the producers. According to the table, consumers will pay
_____ per Twinkie and buy _____ Twinkies after the tax.
A)
$1.20; 8,000
B)
$1.30; 7,000
C)
$1.40; 6,000
D)
$1.50; 5,000
7.
(Ref 14-1 Table: The Market for Fried Twinkies) Use Table 14-1: The Market for Fried
Twinkies. Of the $0.30 tax per fried Twinkie, consumers actually pay _____, while
producers actually pay _____.
A)
$0.30; $0.00
B)
$0.15; $0.15
C)
$0.20; $0.10
D)
$0.00; $0.30
8.
(Ref 14-1 Table: The Market for Fried Twinkies) Use Table 14-1: The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie
and collect that tax from the producers. After paying the tax, producers will receive
_____ per Twinkie, and they will sell _____ Twinkies after the tax.
A)
$1.10; 3,000
B)
$1.20; 5,000
C)
$1.30; 7,000
D)
$1.50; 5,000
Page 3
9.
(Ref 14-1 Table: The Market for Fried Twinkies) Use Table 14-1: The Market for Fried
Twinkies. As a result of the $0.30 tax per fried Twinkie, the government will receive
total tax revenue of:
A)
$500.
B)
$1,000.
C)
$1,500.
D)
The total is impossible to calculate.
Use the following to answer question 10:
10.
(Ref 14-2 Figure: An Excise Tax) Use Figure 14-2: An Excise Tax. If an excise tax
equal to $1.10 is imposed on this good, then the price paid by consumers will:
A)
rise by $1.10.
B)
rise by $1.33.
C)
not rise.
D)
rise by $0.50.
11.
The burden of a tax on a good is said to fall completely on the consumers if the:
A)
price paid by consumers for the good declines by the amount of the tax.
B)
price paid by consumers for the good increases by the amount of the tax.
C)
price paid by consumers does not change.
D)
wages received by workers who produce the good increase by the amount of the
tax.
12.
The burden of a tax on a good is said to fall completely on the producers if the:
A)
price paid by consumers for the good declines by the amount of the tax.
B)
price paid by consumers for the good increases by the amount of the tax.
C)
price paid by consumers does not change.
D)
wages received by workers who produce the good increase by the amount of the
tax.
Page 4
Use the following to answer questions 13-14:
13.
(Ref 14-3 Figure: The Market for Productivity Apps) Use Figure 14-3: The Market for
Productivity Apps. If the government imposes a tax of $1 in this market, consumers will
pay _____ more per app and purchase _____ fewer apps.
A)
$1; 5
B)
$1; 25
C)
$0.50; 5
D)
$0.50; 20
14.
(Ref 14-3 Figure: The Market for Productivity Apps) Use Figure Ref 14-3: The Market
for Productivity Apps. If the government imposes a tax of $1 in this market, producers
will receive _____ less per app and sell _____ fewer apps.
A)
$1; 5
B)
$1; 25
C)
$0.50; 5
D)
$0.50; 20
15.
If an excise tax is imposed on wine and collected from the consumers, the _____ curve
will shift _____ by the amount of the tax.
A)
demand; upward
B)
demand; downward
C)
supply; upward
D)
supply; downward
Page 5
16.
If an excise tax is imposed on beer and collected from the producers, the _____ curve
will shift _____ by the amount of the tax.
A)
demand; upward
B)
demand; downward
C)
supply; upward
D)
supply; downward
17.
Assuming a normal upward-sloping supply curve and downward-sloping demand curve,
if the government imposes a $5 excise tax on leather shoes and collects the tax from the
suppliers, the price of leather shoes will:
A)
increase by $5.
B)
increase by more than $5.
C)
increase by less than $5.
D)
increase, but we cannot determine by how much.
18.
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes
increases by $2:
A)
the government will receive less tax revenue than anticipated.
B)
consumers are paying more of the tax than the producers.
C)
producers are paying more of the tax than are the consumers.
D)
the quantity of shoes sold will increase.
19.
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes
does not change:
A)
the government will receive less tax revenue than anticipated.
B)
consumers are paying all of the tax.
C)
producers are paying all of the tax.
D)
consumers and producers are paying equal amounts of the tax.
20.
State governments levy excise taxes on alcohol because:
A)
they want to subsidize alcohol production.
B)
they want to encourage individuals to produce their own alcohol.
C)
it discourages drinking alcohol while raising revenue for the government.
D)
it is politically popular with religious groups.
21.
Tax incidence refers to:
A)
who writes the check to the government.
B)
who really pays the tax.
C)
the deadweight loss from the tax.
D)
the total revenue that the government collects from the tax.
Page 6
22.
An excise tax is levied on:
A)
each unit of a good or service that is sold.
B)
earnings.
C)
the ownership of real estate.
D)
the inheritance of assets.
23.
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a
$1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon.
The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.
A)
$0.25; $0.75
B)
$0.50; $0.50
C)
$0; $1.00
D)
$0.75; $0.25
24.
Which tax is an excise tax?
A)
a tax of $0.41 per gallon of gas
B)
a tax of 12.4% of your wages
C)
a tax on the value of your property
D)
a one-time local per capita tax of $50
25.
An excise tax is levied on suppliers. The incidence of the tax:
A)
is typically on the consumer more than the producer.
B)
is typically on the producer more than the consumer.
C)
is typically split equally between the producer and the consumer.
D)
cannot be determined without more information.
Use the following to answer question 26:
Page 7
26.
(Ref 14-4 Figure: The Market for Hotel Rooms) Use Figure Ref 14-4: The Market for
Hotel Rooms. Suppose with no tax the equilibrium price is $110 and the equilibrium
quantity is 250. If the local government levies a tax of $30 per night on each hotel room
rented, the new equilibrium price will equal _____ and the new equilibrium quantity
will equal _____.
A)
$140; 100
B)
$130; 150
C)
$120; 200
D)
$110; 250
27.
Taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholic
beverages are called _____ taxes.
A)
personal income
B)
excise
C)
property
D)
sales
28.
Determining who bears the burden of the tax is a question about:
A)
tax incidence.
B)
externality analysis.
C)
public interest theory.
D)
public choice theory.
29.
Tax incidence analysis seeks to determine:
A)
who sends the tax payment to the government.
B)
who actually pays the tax.
C)
who ultimately gets the tax revenue.
D)
whether a tax is in the benefits-received category or the ability-to-pay category.
30.
Determining who actually pays the cost imposed by a tax is the study of:
A)
public interest theory.
B)
rational choice theory.
C)
tax incidence.
D)
budget analysis.
31.
The burden of a tax on a good falls at least partially on consumers if the:
A)
price paid by consumers for the good declines.
B)
price paid by consumers for the good increases.
C)
wages received by workers who produce the good decline.
D)
wages received by workers who produce the good increase.
Page 8
32.
Suppose the absolute value of the price elasticity of demand for yachts equals 4.04,
while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a
luxury tax on yachts, who will pay more of the tax?
A)
Yacht builders will pay more.
B)
Yacht buyers will pay more.
C)
Yacht builders and buyers will pay equally.
D)
It's impossible to tell without additional information.
33.
State governments levy excise taxes on cigarettes because:
A)
they want to subsidize tobacco farming.
B)
they want to discourage cigarette smuggling.
C)
it is an easy way to raise tax revenue while discouraging smoking.
D)
they want to minimize the tax burden on consumers.
34.
Suppose the government levies a $4 per month excise tax on cable TV. If the demand
for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively
(but not perfectly) elastic, then the price of cable TV will:
A)
increase by more than $4.
B)
increase by exactly $4.
C)
increase by less than $4.
D)
remain constant.
35.
Suppose the government imposes a $4 per month excise tax on cable TV. If the demand
for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly
elastic), then the price of cable TV will:
A)
increase by more than $4.
B)
increase by exactly $4.
C)
increase by less than $4.
D)
remain constant.
36.
If the demand curve is downward-sloping and supply is perfectly elastic, then the
burden of an excise tax is:
A)
borne entirely by consumers.
B)
borne entirely by producers.
C)
shared by consumers and producers, with the burden falling mainly on consumers.
D)
shared by consumers and producers, with the burden falling mainly on producers.
Page 9
37.
If demand is perfectly inelastic and the supply curve is upward-sloping, then the burden
of an excise tax is:
A)
borne entirely by consumers.
B)
borne entirely by producers.
C)
shared by consumers and producers, with the burden falling mainly on consumers.
D)
shared by consumers and producers, with the burden falling mainly on producers.
38.
As part of an anti-obesity program, the government levies an excise tax on high-fat
foods. We expect consumers to pay almost all of this tax if demand is _____ and supply
is _____.
A)
inelastic; inelastic
B)
inelastic; elastic
C)
elastic; elastic
D)
elastic; inelastic
39.
Suppose the government imposes a $10 per month tax on cell phone service. If the
demand curve for cell phone service is perfectly inelastic and the supply curve is
upward-sloping, the monthly price for cell phone service will increase by:
A)
$5.
B)
less than $10.
C)
$10.
D)
$0.
40.
Suppose the government imposes a $9 per month tax on cell phone service. If the
demand curve for cell phone service is perfectly elastic and the supply curve is
upward-sloping, the monthly price for cell phone service will:
A)
increase by $4.50.
B)
increase by more than $9.
C)
increase by $9.
D)
not change.
41.
The price elasticity of demand for a particular cancer drug is zero and the price elasticity
of supply is 0.50. If a $1 excise tax is levied on producers, how much of this tax will
eventually be paid by consumers?
A)
$0
B)
$1
C)
$0.50
D)
$1.50
Page 10
42.
The demand for food is very inelastic compared to the supply of food, so if a tax is
imposed on the consumers of food, the tax incidence:
A)
is typically on consumers more than producers.
B)
is typically on producers more than consumers.
C)
is typically split equally between consumers and producers.
D)
cannot be determined without more information.
43.
Demand for Gala apples is relatively elastic compared to the supply of Gala apples, so if
a tax is imposed on the consumers of Gala apples, the tax incidence:
A)
is typically on consumers more than producers.
B)
is typically on producers more than consumers.
C)
is typically split equally between consumers and producers.
D)
cannot be determined without more information.
Use the following to answer questions 44-45:
44.
(Ref 14-5 Figure: The Shrimp Market) Use Figure 14-5: The Shrimp Market. If the
government wants to limit shrimp sales to 500 pounds, it can impose a _____ excise tax
on sellers, and the total tax revenue generated will be _____.
A)
$5; $2,500
B)
$7.50; $7,500
C)
$10; $2,500
D)
The answer cannot be determined from the information provided.
Page 11
45.
(Ref 14-5 Figure: The Shrimp Market) Use Figure 14-5: The Shrimp Market. If the
government wants to limit shrimp sales to 250 pounds, it can impose a _____ excise tax
on sellers, and the total tax revenue generated will be _____.
A)
$5; $2,500
B)
$7.50; $7,500
C)
$10; $2,500
D)
The answer cannot be determined from the information provided.
46.
A higher tax rate is more likely to increase tax revenue if the price elasticity of demand
is _____ and the price elasticity of supply is _____.
A)
high; high
B)
low; low
C)
low; high
D)
high; low
47.
The amount of tax levied per unit of good or service is called the tax:
A)
incidence.
B)
rate.
C)
revenue.
D)
surplus.
48.
A higher rate is most likely to decrease the amount of revenue that the government
collects from an excise tax if demand is _____ and supply is _____.
A)
elastic; elastic
B)
elastic; inelastic
C)
inelastic; elastic
D)
inelastic; inelastic
49.
If demand and supply are both very inelastic, a decrease in the rate of an excise tax will
likely:
A)
decrease government revenue.
B)
increase government revenue.
C)
not affect government revenue.
D)
make demand and supply both elastic.
Page 12
50.
If demand and supply are both very elastic, a decrease in the rate of an excise tax will
likely:
A)
decrease government revenue.
B)
increase government revenue.
C)
not affect government revenue.
D)
make demand and supply both inelastic.
51.
If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is
likely to decrease if the tax rate is increased.
A)
3.3; 2.1
B)
3.3; 0.5
C)
0.2; 2.1
D)
0.2; 0.5
52.
If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is
likely to increase if the tax rate is increased.
A)
3.3; 2.1
B)
3.3; 0.5
C)
0.2; 2.1
D)
0.2; 0.5
53.
If the United States removed all excise taxes on cigarettes, which effect would NOT
occur?
A)
a decrease in producer surplus
B)
an increase in producer surplus
C)
an increase in consumer surplus
D)
an increase in total surplus
54.
When the government imposes an excise tax in a market with a downward-sloping
demand curve and an upward-sloping supply curve:
A)
consumer surplus falls.
B)
producer surplus falls.
C)
a deadweight loss occurs.
D)
consumer surplus falls, producer surplus falls, and a deadweight loss occurs.
Page 13
55.
If the government removed the excise tax on gasoline, assuming that neither demand nor
supply is perfectly inelastic, which effect would NOT occur?
A)
an increase in consumer surplus
B)
an increase in producer surplus
C)
a decrease in producer surplus
D)
an increase in total surplus
56.
The deadweight loss from an excise tax comes about because:
A)
the number of transactions in the market is smaller than the no-tax equilibrium.
B)
some mutually beneficial transactions do not take place.
C)
a quota rent exists.
D)
the number of transactions in the market is reduced and some mutually beneficial
transactions do not take place.
57.
An excise tax causes inefficiency if the number of transactions in a market is reduced as
a result of the tax. Because the tax discourages mutually beneficial transactions, there is
a(n) _____ from a tax.
A)
quota rent
B)
deadweight loss
C)
increased consumer surplus
D)
increased producer surplus
58.
A tax leads to a(n) _____ in consumer surplus and a(n) _____ in producer surplus.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
59.
The burden of a tax system comes from its:
A)
effect on elasticity.
B)
effect on marginal incentives.
C)
inequity.
D)
government revenue.
60.
Assume the same upward supply curve for each of the following goods. Considering
demand only, a tax on _____ would result in the largest deadweight loss.
A)
gasoline
B)
medicine
C)
restaurant meals
D)
tobacco
Page 14
61.
If the government decides to impose a $700 tax on U.S. citizens vacationing abroad,
then the deadweight loss from this tax will be:
A)
relatively small.
B)
relatively large.
C)
zero.
D)
absorbed by foreign governments.
62.
The number of seats in a football stadium is fixed at 70,000. The city decides to impose
a tax of $10 per ticket. In response, the team management raises the ticket price from
$30 to $40 and still sells all 70,000 tickets. The tax caused a change in the consumer
surplus of _____, a change in the producer surplus of _____, and a deadweight loss of
_____.
A)
-$10; $0; $10
B)
-$700,000; $0; $700,000
C)
-$10; $0; $0
D)
-$700,000; $0; $0
63.
Excise taxes that raise the most revenue and cause the least deadweight loss are likely to
be levied on goods for which demand is _____ and supply is _____.
A)
inelastic; elastic
B)
inelastic; inelastic
C)
elastic; inelastic
D)
elastic; elastic
64.
The governor wants to levy a $1 excise tax on a product but wants to minimize the
deadweight loss. The deadweight loss will be LEAST when the demand curve is _____
and the supply curve is _____.
A)
elastic; elastic
B)
elastic; inelastic
C)
inelastic; elastic
D)
inelastic; inelastic
65.
If the demand for luxury yachts is very elastic, then a yacht tax would lead to:
A)
a large deadweight loss.
B)
no deadweight loss.
C)
a small deadweight loss.
D)
a large amount of tax revenue but no deadweight loss.
Page 15
66.
If demand is downward-sloping and supply is upward-sloping, which statement about
the effects of an excise tax is incorrect?
A)
The lower the elasticity of supply relative to the elasticity of demand, the lower the
burden of the tax borne by suppliers.
B)
An excise tax causes a deadweight loss because consumer and producer surpluses
are reduced by more than the revenue the government collects.
C)
An excise tax drives a wedge between the price paid by consumers and the price
received by producers.
D)
An excise tax is inefficient because it distorts incentives at the margin for both
consumers and producers.
67.
If the government wants to minimize the deadweight loss from taxes, it should tax
goods for which the:
A)
price elasticity of demand is high.
B)
price elasticity of demand is low.
C)
price elasticity of supply is high.
D)
demand is high.
68.
If the government levies an excise tax in a market whose demand curve is perfectly
inelastic, the burden of the tax will fall completely on the _____, and the deadweight
loss will equal _____.
A)
consumers; zero
B)
producers; zero
C)
consumers; the tax revenue
D)
producers; the tax revenue
69.
If the government levies an excise tax in a market whose supply curve is perfectly
inelastic, the burden of the tax will fall completely on the _____, and the deadweight
loss will equal _____.
A)
consumers; zero
B)
producers; zero
C)
consumers; the tax revenue
D)
producers; the tax revenue
70.
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall
on goods for which the supply is _____ and the demand is _____.
A)
elastic; elastic
B)
inelastic; inelastic
C)
elastic; inelastic
D)
inelastic; elastic
Page 16
71.
If the main purpose of a tax is to decrease the amount of a harmful activity, such as
underage drinking, the government should impose it on harmful activities whose supply
is _____ and demand is _____.
A)
elastic; elastic
B)
inelastic; inelastic
C)
elastic; inelastic
D)
inelastic; elastic
72.
Given any downward-sloping demand curve for a good, the more price-elastic the
supply curve, the _____ equilibrium output will fall and the _____ will be the
deadweight loss when the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
73.
Given any downward-sloping demand curve for a good, the more inelastic the supply
curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss
when the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
74.
Given any upward-sloping supply curve for a good, the more elastic the demand curve,
the _____ equilibrium output will fall and the _____ will be the deadweight loss when
the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
75.
Given any upward-sloping supply curve for a good, the more inelastic the demand
curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss
when the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
Page 17
76.
An analysis of the effect of excise taxes on markets allows us to conclude that:
A)
when the price elasticity of supply is equal to zero, an excise tax falls entirely on
the consumers.
B)
when the price elasticity of demand is lower than the price elasticity of supply, an
excise tax falls mainly on the producers.
C)
whether the tax is levied on consumers or producers, the quantity sold will be the
same.
D)
when the price elasticity of demand is higher than the price elasticity of supply, an
excise tax falls mainly on the consumers.
77.
The deadweight loss from an excise tax is largest if demand is _____ and supply is
_____.
A)
elastic; inelastic
B)
inelastic; elastic
C)
inelastic; inelastic
D)
elastic; elastic
78.
If the demand for good X is perfectly inelastic and a tax is levied on the producers of
each unit:
A)
consumers pay the entire tax, and deadweight loss will occur because the
equilibrium quantity of good X falls.
B)
consumers pay the entire tax, and there is no deadweight loss because the
equilibrium quantity of good X remains constant.
C)
consumers and producers share the burden of the tax, and there is no deadweight
loss because the equilibrium quantity of good X remains constant.
D)
producers pay the entire tax, and deadweight loss will occur because the
equilibrium quantity of good X falls.
79.
To minimize deadweight loss, markets where demand is relatively _____ and supply is
relatively _____ should be taxed.
A)
elastic; inelastic
B)
elastic; elastic
C)
inelastic; elastic
D)
inelastic; inelastic
80.
If demand is inelastic, then deadweight loss will:
A)
be minimized if supply is also inelastic.
B)
be maximized if supply is also inelastic.
C)
decrease if demand becomes more elastic.
D)
increase if supply becomes more inelastic.
Page 18
Use the following to answer questions 81-82:
81.
(Ref 14-6 Figure and Table: The Market for Taxi Rides) Use Figure and Table 14-6:
The Market for Taxi Rides. If the government imposes an excise tax of $1 per ride
(causing the supply curve to shift upward by that amount), then the government will
collect tax revenues of _____. However, the tax will cause a _____ deadweight loss to
society.
A)
$9 million; $0.5 million
B)
$16 million; $1 million
C)
$45 million; $1 million
D)
$50 million; $0.5 million
Page 19
82.
(Ref 14-6 Figure and Table: The Market for Taxi Rides) Use Figure and Table 14-6:
The Market for Taxi Rides. The figure represents a competitive market for taxi rides. If
the government imposes an excise tax of $2 per ride (causing the supply curve to shift
upward by that amount), then the government will collect tax revenues of _____, but the
tax will cause a _____ deadweight loss to society.
A)
$8 million; $1 million
B)
$16 million; $2 million
C)
$24 million; $4.5 million
D)
$48 million; $6 million
83.
(Ref 14-6 Figure and Table: The Market for Taxi Rides) Use Figure and Table 14-6:
The Market for Taxi Rides. If the government imposes an excise tax of $1 per ride
(causing the supply curve to shift upward by that amount), then people who ride taxis
will pay _____ of each $1 tax.
A)
$1
B)
$0.50
C)
$0.25
D)
$0.00
Use the following to answer questions 84-87:
Page 20
84.
(Ref 14-13 Figure: The Market for Hamburgers) Use Figure Ref 14-13: The Market for
Hamburgers. If the market is originally in equilibrium and the government imposes an
excise tax of $0.80 per unit of the good sold, consumer surplus will be reduced by:
A)
$175.
B)
$240.
C)
$105.
D)
$90.
85.
(Ref 14-13 Figure: The Market for Hamburgers) Use Figure 14-13: The Market for
Hamburgers. If the market is originally in equilibrium and the government imposes an
excise tax of $0.80 per hamburger, producer surplus will be reduced by:
A)
$175.
B)
$240.
C)
$105.
D)
$90.
86.
(Ref 14-13 Figure: The Market for Hamburgers) Use Figure 14-13: The Market for
Hamburgers. If the market is originally in equilibrium and the government imposes an
excise tax of $0.80 per unit of the good sold, the deadweight loss associated with the tax
will be:
A)
$40.
B)
$240.
C)
$105.
D)
$90.
87.
(Ref 14-13 Figure: The Market for Hamburgers) Use Figure 14-13: The Market for
Hamburgers. If the market is originally in equilibrium and the government imposes an
excise tax of $0.80 per unit of the good sold, the government's revenue from the tax will
be:
A)
$175.
B)
$240.
C)
$105.
D)
$90.
88.
When the government imposes an excise tax, the deadweight loss is caused by:
A)
equal the tax revenue paid to the government.
B)
be greater than the tax revenue paid to the government.
C)
be less than the tax revenue paid to the government.
D)
prevention of transactions because of the cost of the tax.
Page 21
89.
A tax:
A)
generates tax revenue and causes deadweight loss.
B)
increases consumer and producer surplus.
C)
produces revenue for the government and increases total surplus.
D)
is always efficient.
Use the following to answer questions 90-96:
90.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure Ref 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What
area or areas in the graph identify tax revenue?
A)
a + b + c
B)
b + d
C)
c + e
D)
d + e + f
91.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What
area or areas in the graph identify consumer and producer surplus after the tax was
levied?
A)
a + b + c
B)
a + b + c + d + e + f
C)
d + e + f
D)
a + f
Page 22
92.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What
area or areas in the graph identify deadweight loss?
A)
a + b + c
B)
b + d
C)
c + e
D)
d + e + f
93.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What
area or areas in the graph identify the loss of consumer surplus due to the tax?
A)
c
B)
b + c
C)
b
D)
a + b + c
94.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What
area or areas in the graph identify the loss of producer surplus due to the tax?
A)
d + e
B)
e
C)
d
D)
d + e + f
95.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What is
the deadweight loss?
A)
$1,000
B)
$500
C)
$250
D)
$1,250
96.
(Ref 14-7 Figure: The Market for Blue Jeans) Use Figure 14-7: The Market for Blue
Jeans. The government recently levied a $10 tax on the producers of blue jeans. What is
the tax revenue?
A)
$1,000
B)
$500
C)
$4,000
D)
$5,000
Page 23
Use the following to answer questions 97-102:
97.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. All other things
unchanged, when a good or service is characterized by a relatively elastic supply, as
shown in panel _____, a greater share of the burden of an excise tax is borne by _____.
A)
A; buyers
B)
B; sellers
C)
B; buyers
D)
A; sellers
98.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. All other things
unchanged, when a good or service is characterized by a relatively inelastic supply, as
shown in panel _____, a greater share of the burden of an excise tax is borne by _____.
A)
A; buyers
B)
B; sellers
C)
A; sellers
D)
B; buyers
Page 24
99.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. All other things
unchanged, when a good or service is characterized by a relatively elastic demand, as
shown in panel _____, the greater share of the burden of an excise tax on it is borne by
_____.
A)
D; buyers
B)
D; sellers
C)
C; sellers
D)
C; buyers
100.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. All other things
unchanged, when a good or service is characterized by a relatively inelastic demand, as
shown in panel _____, the greater share of the burden of an excise tax on it is borne by
_____.
A)
C; buyers
B)
C; sellers
C)
D; sellers
D)
D; buyers
101.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. All other things
unchanged, the effect of an excise tax on gasoline in the short run is most likely
illustrated by panel _____, and the greater share of the burden of the excise tax (shown
by the tax wedge in each panel) is borne by _____.
A)
C; buyers
B)
D; sellers
C)
C; sellers
D)
D; buyers
102.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. All other things
unchanged, the effect of an excise tax on gasoline in the long run is most likely
illustrated by panel _____, and the greater share of the burden of the excise tax (shown
by the tax wedge in each panel) is borne by _____.
A)
A; buyers
B)
B; sellers
C)
B; buyers
D)
A; sellers
Page 25
103.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. Based on the figure,
the deadweight loss of an excise tax is likely to be greater in panel _____ than in panel
_____.
A)
C; D
B)
C; A
C)
D; A
D)
B; A
Use the following to answer questions 104-106:
104.
(Ref 14-8 Figure: Tax Incidence) Use Figure Ref 14-8: Tax Incidence. Based on the
figure, the deadweight loss of an excise tax is likely to be greater in panel _____ than in
panel _____.
A)
D; C
B)
A; B
C)
C; B
D)
B; A
Page 26
105.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. Consumers are likely
to bear more of the burden of an excise tax in the situations illustrated by panels:
A)
A and B.
B)
A and D.
C)
B and D.
D)
B and C.
106.
(Ref 14-8 Figure: Tax Incidence) Use Figure 14-8: Tax Incidence. Producers are likely
to bear more of the burden of an excise tax in the situations illustrated by panels:
A)
A and B.
B)
A and C.
C)
B and D.
D)
B and C.
Use the following to answer questions 107-110:
107.
(Ref 14-9 Figure: The Gasoline Market) Use Figure 14-9: The Gasoline Market. The
pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons.
An excise tax has been levied on each gallon of gasoline supplied by producers. Based
on the graph, the incidence of the tax on suppliers is:
A)
$1.50.
B)
$1.
C)
$0.75.
D)
$15,000.
Page 27
108.
(Ref 14-9 Figure: The Gasoline Market) Use Figure 14-9: The Gasoline Market. The
pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons.
An excise tax has been levied on each gallon of gasoline supplied by producers, shifting
the supply curve upward. What is the tax rate?
A)
$1.75 per gallon
B)
$1 per gallon
C)
$2.50
D)
$0.50
109.
(Ref 14-9 Figure: The Gasoline Market) Use Figure 14-9: The Gasoline Market. The
pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons.
An excise tax has been levied on each gallon of gasoline supplied by producers, shifting
the supply curve upward. The total tax revenue collected by the government is equal to:
A)
$1.50.
B)
$15,000.
C)
$26,250.
D)
$30,000.
110.
(Ref 14-9 Figure: The Gasoline Market) Use Figure 14-9: The Gasoline Market. The
pretax equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons.
An excise tax has been levied on each gallon of gasoline, shifting the supply curve
upward. The deadweight loss from this tax is equal to:
A)
$1.50.
B)
$5,000.
C)
$15,000.
D)
$4,375.
Page 28
Use the following to answer questions 111-115:
111.
(Ref 14-10 Figure: The Market for Lattes) Use Figure 14-10: The Market for Lattes. If
the government assesses a tax of $0.75 on each latte, the price the consumer pays for a
latte after the tax will:
A)
increase from $2 to $2.75.
B)
increase from $2 to $2.50.
C)
increase from $2 to $2.25.
D)
change, but we cannot determine by how much.
112.
(Ref 14-10 Figure: The Market for Lattes) Use Figure 14-10: The Market for Lattes. If
the government assesses a tax of $0.75 on sellers of lattes, the price producers will
receive for a latte after the tax will:
A)
decrease from $2 to $1.75.
B)
decrease from $2 to $1.50.
C)
decrease from $2 to $1.25.
D)
change, but we cannot determine by how much.
113.
(Ref 14-10 Figure: The Market for Lattes) Use Figure 14-10: The Market for Lattes. If
an excise tax of $1.50 is assessed on each latte, government revenue will be:
A)
$400.
B)
$600.
C)
$800.
D)
$1,200.
Page 29
114.
(Ref 14-10 Figure: The Market for Lattes) Use Figure 14-10: The Market for Lattes. If
an excise tax of $2.25 is assessed on each latte, government revenue will be:
A)
$225.
B)
$400.
C)
$450.
D)
$1,800.
115.
(Ref 14-10 Figure: The Market for Lattes) Use Figure 14-10: The Market for Lattes. If
the excise tax increases from $1.50 to $2.25 per latte, government revenue will _____
by _____.
A)
decrease; $150
B)
decrease; $75
C)
increase; $150
D)
increase; $225
Use the following to answer questions 116-125:
116.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. If
the government imposes a $60,000 tax on SUVs and collects it from the consumers, the
_____ curve will shift _____ by _____.
A)
supply; upward; $30,000
B)
supply; upward; $60,000
C)
demand; downward; $30,000
D)
demand; downward; $60,000
Page 30
117.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs.. A
quota of _____ will bring about the same price and output in the market for SUVs as
would an excise tax of $30,000.
A)
2,000
B)
3,000
C)
4,000
D)
The answer is impossible to determine.
118.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs.. A
price _____ of _____ will bring about the same price and output in the market for SUVs
as would an excise tax of $30,000.
A)
ceiling; $80,000
B)
ceiling; $100,000
C)
floor; $120,000
D)
floor; $140,000
119.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. If
the government imposes a $60,000 tax on SUVs (collected from the producers),
consumers will pay _____ of the tax and producers will pay _____.
A)
$30,000; $30,000
B)
$40,000; $20,000
C)
$20,000; $40,000
D)
$10,000; $50,000
120.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. A
quota of _____ will bring about the same price and output in the market for yachts as
would an excise tax of $60,000.
A)
2,000
B)
3,000
C)
4,000
D)
The answer is impossible to determine.
121.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. A
price _____ of _____ will bring the about the same price and output in the market for
SUVs as would an excise tax of $60,000.
A)
ceiling; $80,000
B)
ceiling; $100,000
C)
floor; $100,000
D)
floor; $160,000
Page 31
122.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. If
the government imposes a $30,000 tax on SUVs and collects it from the SUV suppliers,
the _____ curve will shift _____ by _____.
A)
demand; downward; $15,000
B)
supply; upward; $15,000
C)
supply; upward; $30,000
D)
demand; downward; $30,000
123.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. If
the government imposes a $60,000 tax on SUVs (collected from the producers), the
price of SUVs will rise to _____ and the government will collect _____.
A)
$100,000; $120 million
B)
$120,000; $90 million
C)
$140,000; $90 million
D)
$160,000; $120 million
124.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. If
the government imposes a $30,000 tax on SUVs (collected from the producers), the
price of SUVs will rise to _____ and the government will collect _____.
A)
$100,000; $120 million
B)
$120,000; $90 million
C)
$140,000; $90 million
D)
$160,000; $120 million
125.
(Ref 14-11 Figure: The Market for SUVs) Use Figure 14-11: The Market for SUVs. If
the government imposes a $30,000 tax on SUVs (collected from the producers),
consumers will pay _____ of the tax and producers will pay _____.
A)
$20,000; $10,000
B)
$15,000; $15,000
C)
$10,000; $20,000
D)
$5,000; $25,000
126.
If the government wants to limit sales of a particular good, it may do so by imposing a
quota. However, the same reduction in sales may be achieved by an appropriately
chosen excise tax.
A)
True
B)
False
Page 32
127.
The price that buyers pay and the price that sellers receive in the presence of an excise
tax are unaffected by which of these groups officially pays the tax.
A)
True
B)
False
128.
In general, the incidence of an excise tax is shared between buyers and sellers.
A)
True
B)
False
129.
If the government imposes a $500 excise tax on SUVs and the demand curve for SUVs
is downward-sloping, suppliers of SUVs will simply raise the price by $500 and
consumers will bear the entire burden of the tax.
A)
True
B)
False
130.
If demand for a good is perfectly inelastic, then consumers will bear the entire burden of
an excise tax imposed on that good.
A)
True
B)
False
131.
The deadweight loss of an excise tax arises because the tax prevents some mutually
beneficial transactions.
A)
True
B)
False
132.
The administrative costs of a tax include the costs incurred by the government in
collecting the tax (such as the costs of operating the Internal Revenue Service) but
exclude the costs incurred by individuals in paying the tax (such as accountants' fees).
A)
True
B)
False
133.
Cigarette taxes have eliminated the wedge between the demand price for cigarettes and
the supply price of cigarettes.
A)
True
B)
False
Page 33
134.
If the government imposes a per-unit tax on good Y and the supply of good Y is
perfectly inelastic, there will be no deadweight loss due to the tax.
A)
True
B)
False
135.
To minimize deadweight loss, excise taxes should be levied on goods with inelastic
demand and inelastic supply rather than goods with elastic demand and elastic supply.
A)
True
B)
False
136.
If demand is perfectly inelastic, the deadweight loss caused by a tax will be zero.
A)
True
B)
False
137.
Explain how an excise tax levied on suppliers affects the supply curve.
138.
A politician says that a tax on good X will not increase the price of good X paid by
consumers. Is there any way that this can be an accurate statement?
139.
Under what supply and demand conditions would an excise tax impose a large incidence
on suppliers and a small incidence on consumers? Explain how this works.
140.
What is the difference between a tax rate and a tax revenue?
141.
How is it that a higher tax rate can increase tax revenue in some cases but decrease it in
other cases? Relate this to the price elasticity of demand.
142.
How does an excise tax impose a cost on society?
143.
What supply and demand conditions cause zero deadweight loss when an excise tax is
imposed?
Page 34
144.
Suppose the supply of tobacco is elastic and the demand for tobacco is inelastic. If an
excise tax is levied on the suppliers of tobacco, will the incidence fall mostly on
consumers or mostly on producers? Will there be a large amount or small amount of
deadweight loss? Will tax revenue from the tobacco tax fall or rise?
145.
Producers in a particular market will bear the greater burden of an excise tax:
A)
the more price-elastic the demand is relative to supply.
B)
the less price-elastic demand is relative to supply.
C)
if demand has the same price elasticity as supply.
D)
regardless of the price elasticity of demand or supply.
146.
Consumers in a particular market will bear the greater burden of an excise tax:
A)
the more price-elastic supply is relative to demand.
B)
the less price-elastic supply is relative to demand.
C)
if supply has the same price elasticity as demand.
D)
regardless of the price elasticity of demand or supply.
147.
Suppose price elasticity of demand is relatively inelastic for good X. If the price
elasticity of supply for good X is elastic and an excise tax is imposed on good X, who
will bear the greater burden of the tax?
A)
consumers
B)
producers
C)
both consumers and producers equally
D)
government
148.
Suppose the price elasticity of demand is relatively elastic and the price elasticity of
supply is relatively inelastic in a specific market. If an excise tax is imposed on this
good, who will bear the greater burden of the tax?
A)
consumers
B)
producers
C)
both consumers and producers equally
D)
government
149.
When the imposition of an excise tax causes the quantity demanded and quantity
supplied to decrease relative to the no-tax equilibrium, this will result in:
A)
deadweight loss.
B)
increases in producer surplus.
C)
increases in consumer surplus.
D)
increases in both consumer and producer surplus.
Page 35
150.
Price elasticities of demand and supply will NOT play a major role in determining:
A)
the ability of policy makers to change consumption of a good via the imposition of
an excise tax.
B)
the deadweight loss arising from the imposition of an excise tax.
C)
the burden of the tax on consumers and producers.
D)
administrative costs of imposing an excise tax.
151.
Deadweight losses arising from an excise tax are greatest when demand:
A)
and supply are relatively inelastic.
B)
is relatively inelastic and supply is relatively elastic
C)
is relatively elastic and supply is relatively inelastic.
D)
and supply are relatively elastic.
152.
A cost(s) not associated with the imposition of a tax is/are:
A)
deadweight loss.
B)
administrative cost.
C)
revenues.
D)
equilibrium pricing.
Use the following to answer questions 153-159:
153.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The
excise tax imposed on this good is equal to:
A)
P1 -P2.
B)
P1 -P3
C)
P2 -P3.
D)
P1 -P5.
Page 36
154.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax.
Before the tax is imposed, consumer surplus is equal to the areas:
A)
A + B + C + D + E.
B)
A + B + C.
C)
A + B + C + D + E + F.
D)
D + E + F.
155.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax.
Before the tax, producer surplus is equal to the areas:
A)
A + B + C + D.
B)
D + E + F + G.
C)
A + B + C + D + E + F.
D)
A + B + C.
156.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The
tax revenue collected by the government is equal to the area:
A)
(P1 -P3)Q1.
B)
(P1 -P5)Q2.
C)
(P2 -P3)Q1.
D)
(P1 -P2)Q2.
157.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The
transfer of consumer surplus to the government is equal to the area:
A)
B.
B)
C.
C)
D.
D)
F.
158.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The
deadweight loss arising from the imposition of this tax is equal to the areas:
A)
B + D
B)
D + E.
C)
B + C.
D)
C + F.
Page 37
159.
(Ref 14-12 Figure: A Market with a Tax) Use Figure 14-12: A Market with a Tax. The
efficiency loss resulting from this tax is:
A)
(P1 -P3)Q2.
B)
(P1 -P2)Q1
C)
0.5(P1 -P3)(Q2 -Q1).
D)
0.5(P1 -P3)Q1.
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