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534 Miller Economics Today, 16th Edition
37) Dynamic tax analysis assumes
A) all of the present tax rates will be in place for a minimum of twenty years.
B) changes in the tax rates have no effect on the tax base.
C) changes in the tax rates have no effect on tax revenue.
D) changes in the tax rates will change the tax base.
38) Explain why an increase in the tax rate can result in lower tax revenues.
39) A government is thinking about increasing the sales tax rate. Should it use static or dynamic tax
analysis? Explain why one approach is better than the other.
40) According to dynamic tax analysis, will continuing to push up the tax lead to steady increases in
tax revenues? Why?
Chapter 6 Funding the Public Sector 535
6.5 Taxation from the Point of View of Producers and Consumers
1) Imposing a tax on sales of a product
A) shifts the market demand curve for the product.
B) shifts the market supply curve for the product.
C) shifts both the market supply and demand curve for the product.
D) has no effect on either the market demand or the market supply curve for the product.
2) What happens when the government imposes a unit excise tax on a good?
A) The amount of the tax is added to the current equilibrium price.
B) The demand for the newly taxed good decreases.
C) That good s supply curve shifts down by the amount of the tax.
D) The newly taxed good s supply curve shifts vertically upward by the amount of the
per unit tax being levied.
3) The imposition of a unit excise tax on beer will
A) lower equilibrium price and quantity in the market.
B) increase equilibrium quantity and price in the market.
C) lower equilibrium quantity and raise equilibrium price in the market.
D) raise equilibrium quantity and lower equilibrium price in the market.
4) The government imposes a unit excise tax on bubble gum. What happens as a result?
A) The equilibrium quantity of bubble gum increases.
B) At the original market price, there will be a bubble gum shortage.
C) At the original market price, there is a bubble gum shortage and so price rises.
D) There will be no change in either the market price or equilibrium quantity as long as the
excise tax rate is 5 percent or less.
5) Unit excise taxes imposed on gasoline, alcohol, and cigarettes are
A) largely paid by the producers because they want to maintain their level of sales.
B) largely paid by consumers because they are not very responsive to price changes.
C) shared equally between the producer and the consumer.
D) paid by the wholesalers of these products.
6) How can we anticipate the proportion of a newly imposed unit excise tax that consumers will
pay?
A) Consumers will pay most of the tax whenever their demand for a product is relatively
unresponsive to price changes.
B) Consumers will always pay 100 percent of an excise tax.
C) Consumers will pay most of the tax whenever their demand for the product is very price
sensitive.
D) Since producers always pay 100 percent of an excise tax, we know consumers will not pay
any of the tax.
7) Imposing a unit excise tax on the final sale of a good or service can be displayed graphically as
A) a vertical shift upward of the demand curve.
B) a vertical shift upward of the supply curve.
C) a vertical shift downward of the demand curve.
D) a vertical shift downward of the supply curve.
8) Which of the following is TRUE about the effects of an excise tax if consumers are totally
unresponsive to price changes?
A) Consumers pay all of the excise tax.
B) Producers pay all of the excise tax.
C) Consumers and producers share the excise tax equally.
D) Neither consumers nor producers pay the excise tax.
9) A tax levied on purchases of a particular good or service
A) is illegal because it is discriminatory.
B) always leads to a reduction in total tax revenues.
C) always leads to an increase in total tax revenues.
D) is an excise tax.
10) A unit tax
A) is based on the value of the good being sold.
B) is a constant tax assessed on each unit of a good sold.
C) is the primary tax studied in dynamic tax analysis.
D) does not influence equilibrium price and quantity.
11) Which of the following is true of an excise tax?
A) An excise tax is always a unit tax.
B) An excise tax is levied on purchases of particular good or service.
C) An excise tax is based on an individual s income.
D) Imposing an excise tax shifts the market demand curve.
12) If we wanted to analyze the effects of a $2 unit tax graphically, we would shift the
A) supply curve upward by $2. B) supply curve downward by $2.
C) demand curve upward by $2. D) demand curve downward by $2.
13) The imposition of a new excise tax will
A) increase equilibrium price and increase equilibrium quantity.
B) increase equilibrium price and decrease equilibrium quantity.
C) decrease equilibrium price and increase equilibrium quantity.
D) decrease equilibrium price and decrease equilibrium quantity.
14) A unit tax of $0.50 has been levied on a good. The equilibrium price of the good will most likely
A) increase by $0.50. B) remain unchanged.
C) decrease by $0.50. D) increase by an amount less than $0.50.
15) A unit tax of $0.60 will always
A) shift the supply curve upward by more than $0.60.
B) shift the supply curve upward by less than $0.60.
C) shift the supply curve up by exactly $0.60.
D) leave the supply curve unchanged.
16) Refer to the above figure. A unit tax of $.30 has been placed on the good. Which of the following
statements is true about the vertical distance between S1and S2?
A) The distance is less than $0.30.
B) The distance is $0.30.
C) The distance is more than $0.30.
D) The distance cannot be determined with the information given.
17) Refer to the above figures. A unit tax of $2 has been levied on a good. Which of the panels depict
the effect of the taxes?
A) Panel 1.
B) Panel 2.
C) Panel 3.
D) None of the diagrams reflect the effect of the tax.
18) Refer to the above figure. A unit tax has been placed on the good. The consumer pays what
amount of the tax?
A) None of the tax. B) P2P0
C) P2P1D) P1P0
19) Refer to the above figure. A unit tax has been placed on the good. The producer pays what
amount of the tax?
A) None of the tax. B) P2P0
C) P2P1D) P1P0
20) Refer to the above figure. A unit tax has been placed on the good. What is the total amount of
the tax?
A) 0 B) P2P0C) P2P1D) P1P0
21) When a unit tax of $0.50 is levied on a product
A) the entire $0.50 is paid by the consumer.
B) the entire $0.50 is paid by the producer.
C)
b
oth the consumer and producer pay $0.50 each.
D) the consumer pays part of the $0.50 and the producer pays the rest.
22) Which of the following statements about excise taxes is TRUE?
A) The producer will increase the price of the good by the amount of the excise tax.
B) The equilibrium price will increase and the equilibrium quantity will remain unchanged.
C) Both the consumer and producer pay part of the excise tax.
D) Consumers will refuse to pay excise taxes forcing the producers to pay it.
23) Refer to the above figure. An excise tax of $0.50 was imposed on this good. From the figure we
can see that the
A) producer will bear most of the tax.
B) consumer will bear most of the tax.
C) consumer and producer will share the tax.
D) amount of the tax collected is less than $0.50.
24) How would the market for coffee be affected if the government charged an excise tax of $1.00 on
each unit of coffee sold?
A) There would be a shortage of coffee.
B) The demand for coffee would increase.
C) The demand for coffee would decrease.
D) The supply curve would shift up vertically by $1.00.
25) How would the market for DVDs be affected if the government charged an excise tax of $3.00
on each DVD sold?
A) The supply of DVDs would decrease. B) The demand for DVDs would increase.
C) The demand for DVDs would decrease. D) The price of DVDs would rise by $3.00.
26) How does the imposition of an excise tax on a good affect its market equilibrium?
A) Equilibrium quantity decreases, and equilibrium price decreases.
B) Equilibrium quantity decreases, and equilibrium price increases.
C) Equilibrium quantity increases, and equilibrium price decreases.
D) Equilibrium quantity increases, and equilibrium price increases
27) What determines the proportion of a unit excise tax that will be passed on to consumers in the
form of higher prices?
A) the nature of the projects funded by the tax
B) the number of additional taxes that consumers have to pay
C) the popularity of the tax
D) the degree to which quantity demanded and supplied of the good respond to price
changes
28) The imposition of a tax on a product
A) shifts the supply curve to the right.
B) shifts the demand curve to the right.
C) shifts both the supply and the demand curve to the right.
D) shifts the supply curve to the left.
Quantity Quantity Quantity Supplied
Price Demanded Supplied After Tax
$5 10 40 30
$4 15 35 25
$3 20 30 20
$2 25 25 15
$1 30 20 5
29) The demand and supply of a product is given in the above table. A unit tax of $2 is imposed on
the product. The equilibrium quantity for this product after the tax is imposed is equal to
A) 30 units. B) 25 units. C) 20 units. D) 15 units.
30) Using the above table, a unit tax of $2 is imposed on the product. The equilibrium price of this
product after the tax is imposed is
A) $5. B) $4. C) $3. D) $2.
31) Using the above table, a unit tax of $2 is imposed on the product. How much of the tax is paid
by the consumer?
A) $1. B) $2.
C) $3. D) unable to determine.
32) Using the above table, a unit tax of $2 is imposed on the product. How much of the tax is paid
by the producer?
A) $2. B) $1.
C) $3. D) unable to determine.
33) An excise tax on gasoline causes
A) supply of gasoline to shift to the left.
B) a reduction in the quantity of gasoline demanded.
C) the market clearing price of gasoline to rise.
D) All of the above are correct.
34) An excise tax is a tax that is levied on
A) the value of a piece of property.
B) the purchase of a given good or service.
C) the value of an estate.
D) that part of a person s income coming from interest payments.
35) A tax levied on the purchase of a specific good or service is
A) an excise tax. B) a consumption tax.
C) a purchase tax. D) a value tax.
36) A state tax assessed specifically on cigarettes is an example of
A) an excise tax. B) a consumption tax.
C) a social tax. D) a tariff.
37) An excise tax
A) acts as a negative incentive to consume that good or service.
B) is illegal in Florida, Georgia, and Alaska.
C) is often used to encourage the use of a good.
D) is a value added tax (VAT).
38) Using the above figure, if the government levies a new unit tax in this market, S represents the
original supply curve, and Strepresents the after tax supply curve, then the revenues that the
government collects from imposing this tax is represented on this graph by
A) OAEG. B) OBCG. C) BAEC. D) CEF.
39) Using the above figure, if the government levies a new unit tax in this market, S represents the
original supply curve, and Strepresents the after tax supply curve, then the after tax price paid
by consumers is the vertical distance from the origin to
A) point A.
B) point B.
C) somewhere between point B and point A.
D) point F.
40) If a unit excise tax is placed on a good for which the demand is very unresponsive to a price
change, then
A) the government generally pays the majority of the tax.
B) the consumers generally pay the majority of the tax.
C) the producers generally pay the majority of the tax.
D) producers and consumers pay equal portions of the tax.
41) Sales taxes are routinely collected by
A) the merchants selling the good or services.
B) the Internal Revenue Service.
C) the Department of Commerce.
D) the Federal Trade Commission.
42) Should the government wish to lower the price of gasoline to the consumer, one approach might
be
A) to raise the gasoline excise tax.
B) to reduce the gasoline excise tax.
C) to take action to shift the supply curve of gasoline to the left.
D) to lower taxes on automobiles.
43) How is the market for gasoline affected if the excise tax on gasoline is reduced?
A) The supply of gasoline decreases.
B) The supply of gasoline increases.
C) The equilibrium quantity of gasoline decreases.
D) The equilibrium price of gasoline increases.
44) If a state government wants to collect the maximum tax revenue from a unit excise tax, which of
the following would they tax?
A) cigarettes B)
b
eef hamburgers
C) luxury cars D) concert t shirts
45) If a new unit excise tax is levied on bottles of wine, the
A) demand for wine shifts to the left. B) demand for wine shifts to the right.
C) supply of wine shifts to the right. D) supply of wine shifts to the left.
46) Explain why it is that how much consumers pay for an excise tax depends on how responsive
they are to a given change in market price.
47) Using supply and demand analysis, graphically show what an excise tax does to equilibrium
price and quantity. On your graph show the part of the tax paid by the consumer and the part
paid by the producer.
