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1. In 1776, the American Revolution was sparked by anger over
a. the extravagant lifestyle of British royalty.
b. the crimes of British soldiers stationed in the American colonies.
c. British taxes imposed on the American colonies.
d. the failure of the British to protect American colonists from attack by hostile Native Americans.
ANS: C PTS: 1 DIF: 1
NAT: Analytic LOC: Supply and demand
MSC: Definitional
REF: 8-0
TOP: Taxes
2. Anger over British taxes played a significant role in bringing about the
a. election of John Adams as the second American president.
b. American Revolution.
c. War of 1812.
d. “no new taxes” clause in the U.S. Constitution.
ANS: B PTS: 1 DIF: 1 REF: 8-0
NAT: Analytic LOC: Supply and demand
MSC: Definitional
TOP: Taxes
3. Who once said that taxes are the price we pay for a civilized society?
a. Aristotle
b. George Washington
c. Oliver Wendell Holmes, Jr.
d. Ronald Reagan
ANS: C PTS: 1 DIF: 1
NAT: Analytic LOC: Supply and demand
MSC: Definitional
REF: 8-0
TOP: Taxes
4. Who once said that taxes are the price we pay for a civilized society?
a. Milton Friedman
b. Theodore Roosevelt
c. Arthur Laffer
d. Oliver Wendell Holmes, Jr.
ANS: D PTS: 1 DIF: 1
REF: 8-0
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Definitional
5. To fully understand how taxes affect economic well-being, we must
a. assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed.
b. compare the taxes raised in the United States with those raised in other countries, especially France.
c. compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
d. take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.
ANS: C PTS: 1 DIF: 2
REF: 8-0
NAT: Analytic LOC: Supply and demand TOP: Taxes | Economic welfare
MSC: Interpretive
6. To fully understand how taxes affect economic well-being, we must compare the
a. benefit to buyers with the loss to sellers.
b. price paid by buyers to the price received by sellers.
c. profits earned by firms to the losses incurred by consumers.
d. decrease in total surplus to the increase in revenue raised by the government.
ANS: D PTS: 1 DIF: 2 REF: 8-0
NAT: Analytic LOC: Supply and demand TOP: Taxes | Economic welfare
MSC: Interpretive
7. To fully understand how taxes affect economic well-being, we must compare the
a. consumer surplus to the producer surplus.
b. price paid by buyers to the price received by sellers.
c. reduced welfare of buyers and sellers to the revenue raised by the government.
d. consumer surplus to the deadweight loss.
ANS: C PTS: 1 DIF: 2 REF: 8-0
NAT: Analytic LOC: Supply and demand TOP: Taxes | Economic welfare
MSC: Interpretive
8. Which of the following tools help us evaluate how taxes affect economic well-being?
(i) consumer surplus
(ii) producer surplus
(iii) tax revenue
(iv) deadweight loss
a. (i) and (ii) only
b. (i), (ii), and (iii) only
c. (iii) and (iv) only
d. (i), (ii), (iii), and (iv)
ANS: D PTS: 1 DIF: 2 REF: 8-0
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
1. When a tax is levied on a good, the buyers and sellers of the good share the burden,
a. provided the tax is levied on the sellers.
b. provided the tax is levied on the buyers.
c. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers.
d. regardless of how the tax is levied.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Interpretive
2. A tax on a good
a. raises the price that buyers effectively pay and raises the price that sellers effectively receive.
b. raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
d. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
3. When a tax is placed on a product, the price paid by buyers
a. rises, and the price received by sellers rises.
b. rises, and the price received by sellers falls.
c. falls, and the price received by sellers rises.
d. falls, and the price received by sellers falls.
ANS: B PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
4. A tax affects
a. buyers only.
b. sellers only.
c. buyers and sellers only.
d. buyers, sellers, and the government.
REF: 8-1
TOP: Taxes
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
5. The government’s benefit from a tax can be measured by
a. consumer surplus.
b. producer surplus.
c. tax revenue.
d. All of the above are correct.
TOP: Tax incidence
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
TOP: Tax revenue
6. What happens to the total surplus in a market when the government imposes a tax?
a. Total surplus increases by the amount of the tax.
b. Total surplus increases but by less than the amount of the tax.
c. Total surplus decreases.
d. Total surplus is unaffected by the tax.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
7. When a good is taxed,
a. both buyers and sellers of the good are made worse off.
b. only buyers are made worse off, because they ultimately bear the burden of the tax.
c. only sellers are made worse off, because they ultimately bear the burden of the tax.
d. neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Interpretive
8. To measure the gains and losses from a tax on a good, economists use the tools of
a. macroeconomics.
b. welfare economics.
c. international-trade theory.
d. circular-flow analysis.
ANS: B PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Welfare
MSC: Interpretive
9. When a tax is imposed on a good, the
a. supply curve for the good always shifts.
b. demand curve for the good always shifts.
c. amount of the good that buyers are willing to buy at each price always remains unchanged.
d. equilibrium quantity of the good always decreases.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
10. A tax levied on the sellers of a good shifts the
a. supply curve upward (or to the left).
b. supply curve downward (or to the right).
c. demand curve upward (or to the right).
d. demand curve downward (or to the left).
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
11. A tax levied on the buyers of a good shifts the
a. supply curve upward (or to the left).
b. supply curve downward (or to the right).
c. demand curve downward (or to the left).
d. demand curve upward (or to the right).
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
12. If a tax shifts the supply curve upward (or to the left), we can infer that the tax was levied on
a. buyers of the good.
b. sellers of the good.
c. both buyers and sellers of the good.
d. We cannot infer anything because the shift described is not consistent with a tax.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
13. If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on
a. buyers of the good.
b. sellers of the good.
c. both buyers and sellers of the good.
d. We cannot infer anything because the shift described is not consistent with a tax.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
14. If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on
a. buyers of the good.
b. sellers of the good.
c. both buyers and sellers of the good.
d. We cannot infer anything because the shift described is not consistent with a tax.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
15. If a tax shifts the demand curve upward (or to the right), we can infer that the tax was levied on
a. buyers of the good.
b. sellers of the good.
c. both buyers and sellers of the good.
d. We cannot infer anything because the shift described is not consistent with a tax.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
16. When a tax is imposed on the buyers of a good, the demand curve shifts
a. downward by the amount of the tax.
b. upward by the amount of the tax.
c. downward by less than the amount of the tax.
d. upward by more than the amount of the tax.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
17. When a tax is imposed on the sellers of a good, the
a. demand curve shifts downward by less than the amount of the tax.
b. demand curve shifts downward by the amount of the tax.
c. supply curve shifts upward by less than the amount of the tax.
d. supply curve shifts upward by the amount of the tax.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
18. A tax placed on buyers of airline tickets shifts the
a. demand curve for airline tickets downward, decreasing the price received by sellers of airline tickets and causing the quantity of airline tickets to increase.
b. demand curve for airline tickets downward, decreasing the price received by sellers of airline tickets and causing the quantity of airline tickets to decrease.
c. supply curve for airline tickets upward, decreasing the effective price paid by buyers of airline tickets and causing the quantity of airline tickets to increase.
d. supply curve for airline tickets upward, increasing the effective price paid by buyers of airline tickets and causing the quantity of airline tickets to decrease.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
19. Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will
a. fall entirely on the buyers of fast-food French fries.
b. fall entirely on the sellers of fast-food French fries.
c. be shared equally by the buyers and sellers of fast-food French fries.
d. be shared by the buyers and sellers of fast-food French fries but not necessarily equally.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Interpretive
20. It does not matter whether a tax is levied on the buyers or the sellers of a good because
a. sellers always bear the full burden of the tax.
b. buyers always bear the full burden of the tax.
c. buyers and sellers will share the burden of the tax.
d. None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.
ANS: C PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
REF: 8-1
TOP: Tax incidence
21. When tires are taxed and sellers of tires are required to pay the tax to the government,
a. the quantity of tires bought and sold in the market is reduced.
b. the price paid by buyers of tires decreases.
c. the demand for tires decreases.
d. there is a movement downward and to the right along the demand curve for tires.
ANS: A PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
REF: 8-1
TOP: Tax incidence
22. One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the
a. size of the market is unchanged.
b. price the seller effectively receives is higher.
c. supply curve for the good shifts upward by the amount of the tax.
d. tax reduces the welfare of both buyers and sellers.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes | Welfare
MSC: Interpretive
23. When a tax is placed on the buyers of a product, a result is that buyers effectively pay
a. less than before the tax, and sellers effectively receive less than before the tax.
b. less than before the tax, and sellers effectively receive more than before the tax.
c. more than before the tax, and sellers effectively receive less than before the tax.
d. more than before the tax, and sellers effectively receive more than before the tax.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
24. When a tax is levied on a good,
a. neither buyers nor sellers are made worse off.
b. only sellers are made worse off.
c. only buyers are made worse off.
d. both buyers and sellers are made worse off.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes | Welfare
MSC: Interpretive
25. When a tax is levied on the buyers of a good, the
a. supply curve shifts upward by the amount of the tax.
b. quantity supplied increases for all conceivable prices of the good.
c. buyers of the good will send tax payments to the government.
d. demand curve shifts to the right by the horizontal distance of the tax.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Definitional
26. When a tax is levied on the sellers of a good, the
a. supply curve shifts upward by the amount of the tax.
b. quantity demanded decreases for all conceivable prices of the good.
c. quantity supplied increases for all conceivable prices of the good.
d. None of the above is correct.
ANS: A PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
REF: 8-1
TOP: Taxes
27. A $3.50 tax per gallon of paint placed on the sellers of paint will shift the supply curve
a. downward by exactly $3.50.
b. downward by less than $3.50.
c. upward by exactly $3.50.
d. upward by less than $3.50.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Interpretive
28. When a tax on a good is enacted,
a. buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.
b. buyers always bear the full burden of the tax.
c. sellers always bear the full burden of the tax.
d. sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Interpretive
29. A tax placed on a good
a. causes the effective price to sellers to increase.
b. affects the welfare of buyers of the good but not the welfare of sellers.
c. causes the equilibrium quantity of the good to decrease.
d. creates a burden that is usually borne entirely by the sellers of the good.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Interpretive
30. When a tax is levied on buyers of a good,
a. government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
b. there is an increase in the quantity of the good supplied.
c. a wedge is placed between the price buyers pay and the price sellers effectively receive.
d. the effective price to buyers decreases because the demand curve shifts leftward.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
31. When a tax is levied on a good,
a. government collects revenues which might justify the loss in total welfare
b. there is a decrease in the quantity of the good bought and sold in the market.
c. a wedge is placed between the price buyers pay and the price sellers effectively receive.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Applicative
32. When a tax is levied on a good,
a. government revenues exceed the loss in total welfare.
TOP: Taxes
b. there is a decrease in the quantity of the good bought and sold in the market.
c. the price that sellers receive exceeds the price that buyers pay.
d. All of the above are correct.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Applicative
33. The benefit to buyers of participating in a market is measured by
a. the price elasticity of demand.
b. consumer surplus.
TOP: Taxes
c. the maximum amount that buyers are willing to pay for the good.
d. the equilibrium price.
ANS: B PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
34. The benefit to buyers of participating in a market is measured by
a. consumer surplus.
b. producer surplus.
c. total surplus.
d. deadweight loss.
ANS: A PTS: 1 DIF: 1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
35. The benefit that government receives from a tax is measured by
a. the change in the equilibrium quantity of the good.
b. the change in the equilibrium price of the good.
c. tax revenue.
d. total surplus.
ANS: C PTS: 1 DIF: 1
TOP: Consumer surplus
REF: 8-1
TOP: Consumer surplus
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Interpretive
36. The benefit that government receives from a tax is measured by
a. deadweight loss.
b. consumer surplus.
c. tax incidence.
d. tax revenue.
ANS: D PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Interpretive
37. If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as
a. T/Q.
b. T+Q.
c. TxQ.
d. (TxQ)/Q.
ANS: C PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Interpretive
38. When a tax is levied on buyers, the
a. supply curves shifts upward by the amount of the tax.
b. tax creates a wedge between the price buyers effectively pay and the price sellers receive.
c. tax has no effect on the well-being of sellers.
d. All of the above are correct.
ANS: B PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
39. For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the
a. government's benefit from the tax.
b. government's loss from the tax.
c. deadweight loss of the tax.
d. overall net gain to society of the tax.
ANS: A PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Interpretive
40. The decrease in total surplus that results from a market distortion, such as a tax, is called a
a. wedge loss.
b. revenue loss.
c. deadweight loss.
d. consumer surplus loss.
ANS: C PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Definitional
41. A tax on a good
a. gives buyers an incentive to buy more of the good than they otherwise would buy.
b. gives sellers an incentive to produce less of the good than they otherwise would produce.
c. creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers.
d. All of the above are correct.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
42. When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in
a. units of the good that is being taxed.
b. units of a related good that is not being taxed.
c. dollars.
d. percentage change.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
43. The benefit to sellers of participating in a market is measured by the
a. amount of taxes collected on sales of the good.
b. producer surplus.
c. amount sellers receive for their product.
d. sellers' willingness to sell.
ANS: B PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Interpretive
44. When the government places a tax on a product, the cost of the tax to buyers and sellers
a. is less than the revenue raised from the tax by the government.
b. is equal to the revenue raised from the tax by the government.
c. exceeds the revenue raised from the tax by the government.
d. Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes | Welfare
MSC: Applicative
45. Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to
a. decrease and the quantity of gasoline supplied to decrease.
b. decrease and the quantity of gasoline supplied to increase.
c. increase and the quantity of gasoline supplied to decrease.
d. increase and the quantity of gasoline supplied to increase.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
46. Which of the following quantities decrease in response to a tax on a good?
a. the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
b. the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
c. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
d. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
47. For a good that is taxed, the area on the relevant supply-and-demand graph that represents government’s tax revenue is a
a. triangle.
b. rectangle.
c. trapezoid.
d. None of the above is correct; government’s tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
48. For a good that is taxed, the area on the relevant supply-and-demand graph that represents government’s tax revenue is
a. smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
b. bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers.
c. a right triangle.
d. a triangle, but not necessarily a right triangle.
ANS: A PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
49. Total surplus with a tax is equal to
a. consumer surplus plus producer surplus.
b. consumer surplus minus producer surplus.
c. consumer surplus plus producer surplus minus tax revenue.
d. consumer surplus plus producer surplus plus tax revenue.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Interpretive
50. Taxes cause deadweight losses because they
a. lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government.
b. distort incentives to both buyers and sellers.
c. prevent buyers and sellers from realizing some of the gains from trade.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Interpretive
51. Taxes cause deadweight losses because taxes
a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
b. prevent buyers and sellers from realizing some of the gains from trade.
c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Interpretive
52. Deadweight loss measures the loss
a. in a market to buyers and sellers that is not offset by an increase in government revenue.
b. in revenue to the government when buyers choose to buy less of the product because of the tax.
c. of equality in a market due to government intervention.
d. of total revenue to business firms due to the price wedge caused by the tax.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Interpretive
53. The loss in total surplus resulting from a tax is called
a. a deficit.
b. economic loss.
c. deadweight loss.
d. inefficiency.
ANS: C PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Definitional
54. Deadweight loss is the
a. decline in total surplus that results from a tax.
b. decline in government revenue when taxes are reduced in a market.
c. decline in consumer surplus when a tax is placed on buyers.
d. loss of profits to business firms when a tax is imposed.
ANS: A PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Definitional
55. A deadweight loss is a consequence of a tax on a good because the tax
a. induces the government to increase its expenditures.
b. induces buyers to consume less, and sellers to produce less.
c. increases the equilibrium price in the market.
d. imposes a loss on buyers that is greater than the loss to sellers.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Interpretive
56. The supply curve for liquor is the typical upward-sloping straight line, and the demand curve for liquor is the typical downward-sloping straight line. When liquor is taxed, the area on the relevant supply-and-demand graph that represents the deadweight loss is
a. larger than the area that represents consumer surplus in the absence of the tax.
b. larger than the area that represents government’s tax revenue.
c. a triangle.
d. All of the above are correct.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Interpretive
57. The supply curve for cameras is the typical upward-sloping straight line, and the demand curve for cameras is the typical downward-sloping straight line. When cameras are taxed, the area on the relevant supply-anddemand graph that represents
a. government’s tax revenue is a rectangle.
b. the deadweight loss of the tax is a triangle.
c. the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
d. All of the above are correct.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Interpretive
58. For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is
a. $1,750.
b. $2,250.
c. $3,000.
d. $4,500.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
59. In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by
a. 25 per month.
b. 50 per month.
c. 75 per month.
d. 100 per month.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
60. In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is
a. 75 per month.
b. 100 per month.
c. 125 per month.
d. 150 per month.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
61. In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is
a. $250.
b. $125.
c. $75.
d. $50.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
Figure 8-1
Price
Supply P' P'''
J K L M N
I Y B
Quantity
b. J+K+L+M.
c. L+M+Y.
d. I+J+K+L+M+Y.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Analytical
63. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents
a. total surplus before the tax.
b. total surplus after the tax.
c. consumer surplus before the tax.
d. deadweight loss from the tax.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Analytical
64. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area
a. I+Y.
b. J+K+L+M.
c. I+Y+B.
d. I+J+K+L+M+Y.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Analytical
65. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+L+M represents
a. total surplus after the tax.
b. total surplus before the tax.
c. deadweight loss from the tax.
d. tax revenue.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Analytical
66. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents
a. tax revenue.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. total surplus before the tax.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Analytical
67. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area
a. K+L.
b. I+Y.
c. J+K+L+M.
d. I+J+K+L+M+Y.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Analytical
68. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by L+M+Y represents
a. consumer surplus after the tax.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. producer surplus before the tax.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Analytical
69. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus before the tax is measured by the area
a. I+J+K.
b. I+Y.
c. L+M+Y.
d. M.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Analytical
70. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents
a. consumer surplus after the tax.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. producer surplus before the tax.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Analytical
71. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after the tax is measured by the area
a. M.
b. L+M+N+Y+B.
c. L+M+Y.
d. J.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Analytical
72. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents
a. consumer surplus after the tax.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. producer surplus before the tax.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Analytical
73. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus before the tax is measured by the area
a. M.
b. L+M+Y.
c. J.
d. J+K+I.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Analytical
74. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents
a. consumer surplus after the tax.
b. consumer surplus before the tax.
c. producer surplus after the tax.
d. producer surplus before the tax.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Analytical
75. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area
a. J+K+I.
b. J.
c. M.
d. L+M+Y.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Analytical
76. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the
a. deadweight loss due to the tax.
b. loss in consumer surplus due to the tax.
c. loss in producer surplus due to the tax.
d. total surplus before the tax.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
77. Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss due to the tax is measured by the area
a. J+K+L+M.
b. J+K+L+M+N.
c. I+Y.
d. I+Y+B.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
78. Refer to Figure 8-2. The imposition of the tax causes the quantity sold to
a. increase by 1 unit.
b. decrease by 1 unit.
c. increase by 2 units.
d. decrease by 2 units.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
79. Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to
a. decrease by $2.
b. increase by $3.
c. decrease by $4.
d. increase by $5.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
80. Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to
a. decrease by $2.
b. increase by $3.
c. decrease by $4.
d. increase by $5.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
81. Refer to Figure 8-2. The amount of the tax on each unit of the good is
a. $1.
b. $4.
c. $5.
d. $9.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
82. Refer to Figure 8-2. The per-unit burden of the tax on buyers is
a. $2.
b. $3.
c. $4.
d. $5.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Applicative
83. Refer to Figure 8-2. The per-unit burden of the tax on sellers is
a. $2.
b. $3.
c. $4
d. $5.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Applicative
84. Refer to Figure 8-2. The amount of tax revenue received by the government is
a. $2.50.
b. $4.
c. $5.
d. $9.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
85. Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is
a. $2.50.
b. $5.
c. $7.50.
d. $10.
ANS: A PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
86. Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is
a. $1.50.
b. $3.
c. $4.50.
d. $6.
ANS: C PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
87. Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
a. $1.
b. $2.
c. $3.
d. $4.
ANS: C PTS: 1 DIF: 3
NAT: Analytic LOC: Supply and demand
MSC: Applicative
88. Refer to Figure 8-2. Consumer surplus without the tax is
a. $6, and consumer surplus with the tax is $1.50.
b. $6, and consumer surplus with the tax is $4.50.
c. $10, and consumer surplus with the tax is $1.50.
d. $10, and consumer surplus with the tax is $4.50.
ANS: A PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Applicative
89. Refer to Figure 8-2. Producer surplus without the tax is
a. $4, and producer surplus with the tax is $1.
b. $4, and producer surplus with the tax is $3.
c. $10, and producer surplus with the tax is $1.
d. $10, and producer surplus with the tax is $3.
REF: 8-1
TOP: Producer surplus
REF: 8-1
TOP: Consumer surplus
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative
90. Refer to Figure 8-2. Total surplus without the tax is
a. $10, and total surplus with the tax is $2.50.
b. $10, and total surplus with the tax is $7.50.
c. $20, and total surplus with the tax is $2.50.
d. $20, and total surplus with the tax is $7.50.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
91. Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is
a. $0.
b. $1.50.
c. $3.
d. $4.50.
ANS: B PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
92. Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is
a. $0.
b. $1.50.
c. $3.
d. $4.50.
ANS: C PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
93. Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is
a. $0.
b. $1.
c. $2.
d. $3.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative
94. Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is
a. $0.
b. $1.
c. $2.
d. $3.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative
Figure 8-3
The vertical distance between points A and C represents a tax in the market.
95. Refer to Figure 8-3. The equilibrium price before the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANS: B PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
96. Refer to Figure 8-3. The price that buyers effectively pay after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
97. Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
98. Refer to Figure 8-3. The per unit burden of the tax on buyers is
a. P3 - P1.
b. P3 - P2.
c. P2 - P1.
d. P4 - P3.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
99. Refer to Figure 8-3. The per-unit burden of the tax on sellers is
a. P3 - P1.
b. P3 - P2.
c. P2 - P1.
d. P4 - P3.
ANS: C PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
100. Refer to Figure 8-3. The amount of the tax on each unit of the good is
a. P3 - P1.
b. P3 - P2.
c. P2 - P1.
d. P4 - P3.
ANS: A PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
101. Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area
a. P3ACP1.
b. ABC.
c. P2DAP3.
d. P1CDP2.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
102. Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to
a. P3ACP1.
b. ABC.
c. P2ADP3.
d. P1DCP2.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
103. Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area
a. P1P3AC.
b. P3ABP2.
c. P1P3ABC.
d. ABC.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Analytical
104. Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area
a. ABC.
b. P1P3ABC.
c. P1P2BC.
d. P1C0.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Analytical
105. Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?
a. Tax revenue = (P2 - P1)xQ1
b. Tax revenue = (P3 - P1)xQ1
c. Tax revenue = (P3 - P2)xQ1
d. Tax revenue = (P3 - P1)x(Q2 - Q1)
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
106. Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?
a. Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1)
b. Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1)
c. Deadweight loss = (1/2)(P3 - P2)(Q2- Q1)
d. Deadweight loss = (1/2)(P3 - P1)(Q2- Q1)
ANS: D PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
107. Refer to Figure 8-4. The equilibrium price before the tax is imposed is
a. $12, and the equilibrium quantity is 70.
b. $8, and the equilibrium quantity is 100.
c. $5, and the equilibrium quantity is 70.
d. $5, and the equilibrium quantity is 100.
ANS: B PTS: 1 DIF: 1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
REF: 8-1
TOP: Taxes
108. Refer to Figure 8-4. The price that buyers effectively pay after the tax is imposed is
a. $12.
b. between $8 and $12.
c. between $5 and $8.
d. $5.
ANS: A PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Applicative
REF: 8-1
TOP: Taxes
109. Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is
a. $12.
b. between $8 and $12.
c. between $5 and $8.
d. $5.
ANS: D PTS: 1 DIF: 2
NAT: Analytic LOC: Supply and demand
MSC: Applicative
REF: 8-1
TOP: Taxes
110. Refer to Figure 8-4. The per-unit burden of the tax on buyers is
a. $3.
b. $4.
c. $5.
d. $8.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
111. Refer to Figure 8-4. The per-unit burden of the tax on sellers is
a. $7.
b. $5.
c. $4.
d. $3.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
112. Refer to Figure 8-4. The amount of the tax on each unit of the good is
a. $5.
b. $7.
c. $8.
d. $12.
ANS: B PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
113. Refer to Figure 8-4. The amount of tax revenue received by the government is equal to
a. $350.
b. $490.
c. $700.
d. $840.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
114. Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is
a. $105.
b. $210.
c. $490.
d. $600.
ANS: A PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
115. Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to
a. $120.
b. $340.
c. $450.
d. $510.
ANS: B PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
116. Refer to Figure 8-4. The tax results in a loss of producer surplus that amounts to
a. $45.
b. $90.
c. $210.
d. $255.
ANS: D PTS: 1 DIF: 3
NAT: Analytic LOC: Supply and demand
MSC: Applicative
Figure 8-5
Suppose that the government imposes a tax of P3 - P1.
REF: 8-1
TOP: Producer surplus
117. Refer to Figure 8-5. The equilibrium price before the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANS: B PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes MSC: Interpretive
118. Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
119. Refer to Figure 8-5. The price that sellers effectively receive after the tax is imposed is
a. P1.
b. P2.
c. P3.
d. P4.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
120. Refer to Figure 8-5. The tax is levied on
a. buyers only.
b. sellers only.
c. both buyers and sellers.
d. This is impossible to determine from the figure.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Interpretive
121. Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Interpretive
122. Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Interpretive
123. Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
124. Refer to Figure 8-5. After the tax is levied, producer surplus is represented by area
a. A.
b. A+B+C.
c. D+H+F.
d. F.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative
125. Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area
a. A.
b. B+C.
c. C+H.
d. F.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
126. Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area
a. A.
b. C+H.
c. D+H.
d. F.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative
127. Refer to Figure 8-5. The benefit to the government is measured by
a. tax revenue and is represented by area A+B.
b. tax revenue and is represented by area B+D.
c. the net gain in total surplus and is represented by area B+D.
d. the net gain in total surplus and is represented by area C+H.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
128. Refer to Figure 8-5. The total surplus with the tax is represented by area
a. C+H.
b. A+B+C.
c. D+H+F.
d. A+B+D+F.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
129. Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area
a. A+B+D+F.
b. A+B+C.
c. D+H+F.
d. C+H.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
130. Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are
a. $16 and 300.
b. $10 and 600.
c. $10 and 300.
d. $6 and 300.
ANS: B PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
131. Refer to Figure 8-6. Without a tax, consumer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus MSC: Interpretive
132. Refer to Figure 8-6. Without a tax, producer surplus in this market is
a. $1,500.
b. $2,400.
c. $3,000.
d. $3,600.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Interpretive
133. Refer to Figure 8-6. Without a tax, total surplus in this market is
a. $3,000.
b. $4,800.
c. $6,000.
d. $7,200.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Interpretive
134. Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is
a. $4.
b. $6.
c. $10.
d. $16.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
135. Refer to Figure 8-6. When the tax is imposed in this market, buyers effectively pay what amount of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
136. Refer to Figure 8-6. When the tax is imposed in this market, sellers effectively pay what amount of the $10 tax?
a. $0
b. $4
c. $6
d. $10
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
137. Refer to Figure 8-6. When the tax is imposed in this market, the price sellers effectively receive is
a. $4.
b. $6.
c. $10.
d. $16.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax burden
MSC: Applicative
138. Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
139. Refer to Figure 8-6. When the tax is imposed in this market, producer surplus is
a. $450.
b. $600.
c. $900.
d. $1,500.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative
140. Refer to Figure 8-6. When the tax is placed on this good, the quantity sold
a. is 600, and buyers effectively pay $10.
b. is 300, and buyers effectively pay $10.
c. is 600, and buyers effectively pay $16.
d. is 300, and buyers effectively pay $16.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
141. Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is
a. $600.
b. $900.
c. $1,500.
d. $3,000.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
142. Refer to Figure 8-6. The amount of the tax on each unit of the good is
a. $6.
b. $8.
c. $10.
d. $12.
ANS: C PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
143. Refer to Figure 8-6. Total surplus with the tax in place is
a. $1,500.
b. $3,600.
c. $4,500.
d. $6,000.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
144. Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?
a. Consumer surplus falls by $3,600.
b. Consumer surplus falls by $2,700.
c. Consumer surplus falls by $1,800.
d. Consumer surplus falls by $900.
ANS: B PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
145. Refer to Figure 8-6. What happens to producer surplus when the tax is imposed in this market?
a. Producer surplus falls by $600.
b. Producer surplus falls by $900.
c. Producer surplus falls by $1,800.
d. Producer surplus falls by $2,100.
ANS: C PTS: 1 DIF: 3
NAT: Analytic LOC: Supply and demand
MSC: Applicative
REF: 8-1
TOP: Producer surplus
146. Refer to Figure 8-6. What happens to total surplus in this market when the tax is imposed?
a. Total surplus increases by $1,500.
b. Total surplus increases by $3,000.
c. Total surplus decreases by $1,500.
d. Total surplus decreases by $,3000.
ANS: C PTS: 1 DIF: 3
NAT: Analytic LOC: Supply and demand
MSC: Applicative
REF: 8-1
TOP: Total surplus
147. Refer to Figure 8-6. The tax results in a deadweight loss that amounts to
a. $600.
b. $900.
c. $1,500.
d. $1,800.
ANS: C PTS: 1 DIF: 3
NAT: Analytic LOC: Supply and demand
MSC: Applicative
REF: 8-1
TOP: Deadweight loss
148. Refer to Figure 8-7. Before the tax is imposed, the equilibrium price is
a. $16, and the equilibrium quantity is 15.
b. $12, and the equilibrium quantity is 15.
c. $12, and the equilibrium quantity is 25.
d. $8, and the equilibrium quantity is 15.
ANS: C PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Interpretive
149. Refer to Figure 8-7. As a result of the tax, buyers effectively pay
a. $16 for each unit of the good, and sellers effectively receive $12 for each unit of the good.
b. $16 for each unit of the good, and sellers effectively receive $8 for each unit of the good.
c. $12 for each unit of the good, and sellers effectively receive $8 for each unit of the good.
d. $14 for each unit of the good, and sellers effectively receive $10 for each unit of the good.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
150. Refer to Figure 8-7. Suppose a 22nd unit of the good were sold by a seller to a buyer. Which of the following statements is correct?
a. For the 22nd unit, the difference between the buyer’s value and the seller’s cost is less than the tax per unit.
b. For the 22nd unit, the difference between the buyer’s value and the seller’s cost is greater than the tax per unit.
c. For the 22nd unit, the difference between the buyer’s value and the seller’s cost is equal to the tax per unit.
d. It makes sense for the buyer to buy and for the seller to sell the 22nd unit, with or without the tax in place.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
151. Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?
a. For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear onehalf of the tax burden.
b. For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear twothirds of the tax burden.
c. For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers bear three-fourths of the tax burden.
d. For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers bear one-fourth of the tax burden.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Applicative
152. Refer to Figure 8-7. Which of the following statements is correct?
a. Total surplus before the tax is imposed is $250.
b. After the tax is imposed, consumer surplus is 45 percent of its pre-tax value.
c. After the tax is imposed, producer surplus is 45 percent of its pre-tax value.
d. All of the above are correct.
ANS: A PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Total surplus MSC: Applicative
153. Refer to Figure 8-7. Which of the following statements is correct?
a. Total surplus before the tax is imposed is $45.
b. After the tax is imposed, consumer surplus is 25 percent of its pre-tax value.
c. After the tax is imposed, producer surplus is 36 percent of its pre-tax value
d. All of the above are correct.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Total surplus MSC: Applicative
154. Refer to Figure 8-7. As a result of the tax,
a. consumer surplus decreases from $150 to $60.
b. producer surplus decreases from $125 to $45.
c. the market experiences a deadweight loss of $45.
d. All of the above are correct.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss MSC: Applicative
155. Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by
a. $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30.
b. $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30.
c. $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40.
d. $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss MSC: Applicative
156. Refer to Figure 8-7. Which of the following statements is correct?
a. The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $30.
b. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $60.
c. The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax.
d. This tax produces $200 in tax revenue for the government.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss MSC: Applicative
157. Refer to Figure 8-7. The deadweight loss associated with this tax amounts to
a. $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
b. $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
c. $40, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
d. $40, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
ANS: D PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
158. Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Interpretive
159. Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area
a. A.
b. B+C.
c. A+B+C.
d. A+B+D+J+K.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Interpretive
160. Refer to Figure 8-8. The tax causes producer surplus to decrease by the area
a. D+F.
b. D+F+G.
c. D+F+J.
d. D+F+G+H.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Interpretive
161. Refer to Figure 8-8. After the tax goes into effect, producer surplus is the area
a. D+F+G+H+J.
b. D+F+G+H.
c. D+F+J.
d. J.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Interpretive
162. Refer to Figure 8-8. The government collects tax revenue that is the area
a. L.
b. B+D.
c. C+F.
d. F+G+L.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax revenue
MSC: Applicative
163. Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area
a. C.
b. F.
c. G.
d. C+F.
ANS: D PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
164. Refer to Figure 8-8. The deadweight loss of the tax is the area
a. B+D.
b. C+F.
c. A+C+F+J.
d. B+C+D+F.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
165. Refer to Figure 8-8. One effect of the tax is to
a. reduce consumer surplus from $180 to $72.
b. reduce producer surplus from $96 to $24.
c. create a deadweight loss of $72.
d. All of the above are correct.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss
166. Refer to Figure 8-8. One effect of the tax is to
a. reduce consumer surplus by $108.
b. reduce producer surplus by $72.
c. create a deadweight loss of $60.
d. All of the above are correct.
MSC: Applicative
ANS: D PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss
Scenario 8-1
MSC: Applicative
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin’s house is $70 per week.
167. Refer to Scenario 8-1. If Erin pays Ernesto $80 to clean her house, Erin’s consumer surplus is
a. $80.
b. $30.
c. $20.
d. $10.
ANS: C PTS: 1 DIF: 1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
REF: 8-1
TOP: Consumer surplus
168. Refer to Scenario 8-1. If Ernesto cleans Erin's house for $80, Ernesto’s producer surplus is
a. $80.
b. $30.
c. $20.
d. $10.
ANS: D PTS: 1 DIF: 1
NAT: Analytic LOC: Supply and demand
MSC: Interpretive
REF: 8-1
TOP: Producer surplus
169. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?
a. Erin will now clean her own house.
b. Ernesto will continue to clean Erin’s house, but his producer surplus will decline.
c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase.
d. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Applicative
TOP: Deadweight loss
170. Refer to Scenario 8-1. Assume Erin is required to pay a tax of $15 when she hires someone to clean her house. Which of the following is true?
a. Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
b. Ernesto will continue to clean Erin's house, and his producer surplus will increase.
c. Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease.
d. All of the above are correct.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
Scenario 8-2
Tom mows Stephanie's lawn for $25. Tom’s opportunity cost of mowing Stephanie’s lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28.
171. Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Stephanie’s consumer surplus is
a. $3.
b. $5.
c. $8.
d. $25.
ANS: A PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Interpretive
172. Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Tom’s producer surplus is
a. $2.
b. $3.
c. $5.
d. $25.
ANS: C PTS: 1 DIF: 1 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Interpretive
173. Refer to Scenario 8-2. Assume Tom is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?
a. Stephanie now will decide to mow her own lawn, and Tom will decide it is no longer in his interest to mow Stephanie’s lawn.
b. Stephanie is willing to pay Tom to mow her lawn, but Tom will decline her offer.
c. Tom is willing to mow Stephanie’s lawn, but Stephanie will decide to mow her own lawn.
d. Tom and Stephanie still can engage in a mutually-agreeable trade.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
174. Refer to Scenario 8-2. Assume Tom is required to pay a tax of $10 each time he mows a lawn. Which of the following results is most likely?
a. Stephanie now will decide to mow her own lawn, and Tom will decide it is no longer in his interest to mow Stephanie’s lawn.
b. Stephanie still is willing to pay Tom to mow her lawn, but Tom will decline her offer.
c. Tom still is willing to mow Stephanie’s lawn, but Stephanie will decide to mow her own lawn.
d. Tom and Stephanie still can engage in a mutually-agreeable trade.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Applicative
175. Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is
a. $250.
b. $500.
c. $750.
d. $1,000.
ANS: A PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Total surplus MSC: Applicative
176. Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is
a. $200.
b. $400.
c. $600.
d. $1,200.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss MSC: Applicative
177. Suppose a tax of $3 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $3,900 and decreases producer surplus by $3,000. The tax generates tax revenue of $6,000. The tax decreased the equilibrium quantity of the good from
a. 2,000 to 1,500.
b. 2,400 to 2,000.
c. 2,600 to 2,000.
d. 3,000 to 2,400.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss
MSC: Analytical
178. Suppose a tax of $5 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $10,000 and decreases producer surplus by $15,000. The deadweight loss of the tax is $2,500. The tax decreased the equilibrium quantity of the good from
a. 6,500 to 5,500.
b. 5,500 to 4,500.
c. 5,000 to 3,000.
d. 6,000 to 4,000.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss
MSC: Analytical
179. A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax
a. decreases consumer surplus by $645 per day.
b. decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
c. decreases total surplus from $3,000 to $1,800 per day.
d. creates a deadweight loss of $15 per day.
ANS: D PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand
TOP: Consumer surplus | Producer surplus | Deadweight loss MSC: Analytical
180. Andre walks Julia’s dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre’s time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?
a. $60
b. $50
c. $30
d. $25
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
181. Andre walks Julia’s dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre’s time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?
a. $50
b. $30
c. $25
d. $0
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
182. Andre walks Julia’s dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre’s time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?
a. $50
b. $30
c. $25
d. $0
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
183. Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana’s time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?
a. $25
b. $20
c. $5
d. $0
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Applicative
184. Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana’s time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?
a. Diana and Charles will agree to a new price somewhere between $85 and $100.
b. Diana and Charles will agree to a new price somewhere between $70 and $110.
c. Diana will no longer offer personal training services to Charles because she must charge more than $100 in order to cover her opportunity costs and pay the tax.
d. The price will remain at $80, and Diana will pay the $10 tax.
ANS: A PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Total surplus
MSC: Interpretive
185. A tax
a. lowers the price buyers pay and raises the price sellers receive.
b. raises the price buyers pay and lowers the price sellers receive.
c. places a wedge between the price buyers pay and the price sellers receive.
d. Both b) and c) are correct.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
186. Suppose Ashley needs a dog sitter so that she can travel to her sister’s wedding. Ashley values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $175. Ashley and Cami agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?
a. the maximum value that Ashley would pay for dog sitting
b. the $30 tax
c. the lost benefit to Ashley and Cami because after the tax, Cami will not dog sit for Ashley
d. the lost benefit to Ashley of being unable to hire a dog sitter because Ashley is the one who would pay the tax
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
187. Suppose Ashley needs a dog sitter so that she can travel to her sister’s wedding. Ashley values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $175. Ashley and Cami agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Ashley and Cami worse off by a total of
a. $30.
b. $25.
c. $10.
d. $5.
ANS: B PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
188. Suppose Ashley needs a dog sitter so that she can travel to her sister’s wedding. Ashley values dog sitting for the weekend at $200. Cami is willing to dog sit for Ashley so long as she receives at least $150. Ashley and Cami agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Ashley and Cami worse off by a total of
a. $50.
b. $40.
c. $20.
d. $10.
ANS: D PTS: 1 DIF: 3
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Deadweight loss
MSC: Analytical
Figure 8-9
The vertical distance between points A and C represent a tax in the market.
189. Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is
a. P=$800 and Q=20.
b. P=$600 and Q=20.
c. P=$300 and Q=20.
d. P=$600 and Q=40.
ANS: D PTS: 1 DIF: 1
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
190. Refer to Figure 8-9. The imposition of the tax causes the quantity sold to
a. increase by 20 units.
b. increase by 500 units.
c. decrease by 20 units.
d. decrease by 500 units.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
191. Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by
a. $20.
b. $200.
c. $300.
d. $500.
ANS: B PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
192. Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to
a. increase from $600 to $800.
b. increase from $300 to $800.
c. decrease from $600 to $300.
d. remain unchanged at $600.
ANS: A PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
193. Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease by
a. $20.
b. $200.
c. $300.
d. $500.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
194. Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to
a. increase from $600 to $800.
b. decrease from $800 to $300.
c. decrease from $600 to $300.
d. remain unchanged at $600.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
195. Refer to Figure 8-9. The amount of the tax on each unit of the good is
a. $20.
b. $200.
c. $300.
d. $500.
ANS: D PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Taxes
MSC: Applicative
196. Refer to Figure 8-9. The per-unit burden of the tax on buyers is
a. $20.
b. $200.
c. $300.
d. $500.
ANS: B PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Tax incidence
MSC: Applicative
197. Refer to Figure 8-9. The per-unit burden of the tax on sellers is
a. $20.
b. $200.
c. $300.
d. $500.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Applicative
TOP: Tax incidence
198. Refer to Figure 8-9. The amount of tax revenue received by the government is
a. $4,000.
b. $6,000.
c. $10,000.
d. $24,000.
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand
MSC: Applicative
199. Refer to Figure 8-9. The consumer surplus without the tax is
a. $2,000.
b. $5,000.
c. $8,000.
d. $16,000.
TOP: Tax revenue
ANS: C PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
200. Refer to Figure 8-9. The consumer surplus with the tax is
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
ANS: A PTS: 1 DIF: 2 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
201. Refer to Figure 8-9. The loss of consumer surplus as a result of the tax is
a. $2,000.
b. $4,000.
c. $6,000.
d. $8,000.
ANS: C PTS: 1 DIF: 3 REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Consumer surplus
MSC: Applicative
202. Refer to Figure 8-9. The producer surplus without the tax is
a. $3,000.
b. $8,000.
c. $12,000.
d. $24,000.
ANS: C PTS: 1 DIF: 2
REF: 8-1
NAT: Analytic LOC: Supply and demand TOP: Producer surplus
MSC: Applicative