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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.
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.
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.
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.
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.
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.
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
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
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
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.
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.
26. The deadweight loss from a tax
a.
does not vary in amount when the price elasticity of demand changes.
b.
does not vary in amount when the amount of the tax per unit changes.
c.
is larger, the larger is the amount of the tax per unit.
d.
is smaller, the larger is the amount of the tax per unit.
27. Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?
a.
The greater are the price elasticities of supply and demand, the greater is the deadweight loss.
b.
The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the
deadweight loss.
c.
The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss.
d.
The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is
the deadweight loss.
28. The amount of deadweight loss that results from a tax of a given size is determined by
a.
whether the tax is levied on buyers or sellers.
b.
the number of buyers in the market relative to the number of sellers.
c.
the price elasticities of demand and supply.
d.
the ratio of the tax per unit to the effective price received by sellers.
29. The amount of deadweight loss from a tax depends upon the
a.
price elasticity of demand.
b.
price elasticity of supply.
c.
amount of the tax per unit.
d.
All of the above are correct.
30. Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a
typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month
when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to
$1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government’s tax revenue amounts to $475
per month. Which of the following statements is correct?
a.
After the tax is imposed, the equilibrium quantity of diapers is 900 per month.
b.
The demand for diapers is more elastic than the supply of diapers.
c.
The deadweight loss of the tax is $12.50.
d.
The tax causes a decrease in consumer surplus of $380.
31. Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a
typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month
when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to
$1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government’s tax revenue amounts to $475
per month. Which of the following statements is correct?
a.
The demand for cigars is less elastic than the supply of cigars.
b.
The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
c.
The deadweight loss of the tax is $12.50.
d.
All of the above are correct.
32. Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a
significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same
tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity.
Other factors are held constant. In which market will the tax have a larger deadweight loss?
a.
Market A
b.
Market B
c.
The deadweight loss will be the same in both markets.
d.
There is not enough information to answer the question.
33. Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good,
the
a.
smaller the deadweight loss from the tax.
b.
greater the deadweight loss from the tax.
c.
more efficient is the tax.
d.
more equitable is the distribution of the tax burden between buyers and sellers.
34. Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the
a.
larger is the price elasticity of demand.
b.
smaller is the price elasticity of supply.
c.
larger is the amount of the tax.
d.
All of the above are correct.
35. Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the
a.
less elastic is the demand for the good.
b.
less elastic is the supply of the good.
c.
smaller is the amount of the tax.
d.
All of the above are correct.
36. Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for
the good, the
a.
smaller the deadweight loss from the tax.
b.
greater the deadweight loss from the tax.
c.
less efficient is the tax.
d.
more equitable is the distribution of the tax burden between buyers and sellers.
37. Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is 100 thousand gallons per day
with no tax on milk. Starting from this initial situation, which of the following scenarios would result in the smallest
deadweight loss?
a.
The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is 0.7, and the milk tax
amounts to $0.40 per gallon.
b.
The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.5, and the milk tax
amounts to $0.30 per gallon.
c.
The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.7, and the milk tax
amounts to $0.30 per gallon.
d.
The price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is 0.5, and the milk tax
amounts to $0.20 per gallon.
