1. A specific tax:
D. is a tax that is only paid by producers.
2. An ad valorem tax:
D. is a tax that is only paid by producers.
3. The federal gasoline tax is an example of:
D. an income tax.
4. A sales tax is an example of:
D. an income tax.
5. The incidence of a tax:
A. indicates how much of the tax burden is borne by suppliers.
6. The incidence of a tax:
D. falls entirely on suppliers if demand is perfectly inelastic.
7. The incidence of a tax:
A. falls entirely on consumers if supply is perfectly inelastic.
8. The incidence of a tax:
A. falls entirely on suppliers if supply is perfectly elastic.
9. More of a tax is borne by firms:
D. the less elastic is demand and the more elastic is supply.
10. The deadweight loss of taxation:
A. is the lost consumer surplus due to a gain in producer surplus from a tax.
11. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The price paid by
buyers with the tax is:
D. $2.25.
12. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The price received by
sellers with the tax is:
A. $2.33.
13. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The consumer surplus
with the tax is:
A. $166,667.
14. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The loss in consumer
surplus due to the tax is:
D. $944,444.
15. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The producer surplus
after the tax is:
D. $7.11 million.
16. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The change in producer
surplus due to the tax is:
A. $3.56 million.
17. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The aggregate surplus
with the tax is:
A. $7.11 million.
18. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The government
revenue raised by the tax is:
D. $4.50 million.
19. Suppose the market demand function for ice cream is
Q
d
= 10 – 2
P
and the market supply
function for ice cream is
Qs
= 4
P
– 2, both measured in millions of gallons of ice cream per year.
Suppose the government imposes a $0.50 tax on each gallon of ice cream. The deadweight loss
due to the tax is:
D. $1.89 million.
20. There is no deadweight loss from a tax:
A. only if demand is perfectly elastic.
21. The deadweight loss from a tax:
A. is zero when demand is perfectly elastic.
22. A subsidy:
D. increases both the amount that buyers pay and the amount sellers receive for a good.
23. A subsidy:
D. increases both the amount that buyers pay and the amount sellers receive for a good.
24. Which of the following statements is NOT true regarding subsidies?
D. Subsidies are unlike taxes in that they reduce the price that buyers pay for a good.
25. A price floor:
D. establishes a minimum quantity.
26. With a price floor:
A. consumer surplus falls and producer surplus falls.
27. With a price floor:
D. producer surplus always increases.
28. With a price floor:
D. producer surplus always decreases.
29. A price support program:
A. lowers the market price by making purchases of a good, thereby increasing demand.
30. When the government implements a price support program:
A. it may end up buying a lot of the good, for which it has little or no use.
31. All of the following are true regarding a production quota EXCEPT:
A. a production quota imposes limits on the quantity that individual firms can produce.