Chapter 8

Chapter 8 Application: the Costs of Taxation
TRUE/FALSE 1. Total surplus is always equal to the sum of consumer surplus and producer surplus. ANS: F DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': Total surplus (S&: Interpreti)e 2. Total surplus in a mar*et does not chan+e when the +o)ernment imposes a ta, on that mar*et -ecause the loss of consumer surplus and producer surplus is equal to the +ain of +o)ernment re)enue. ANS: F DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': Total surplus (S&: Interpreti)e .. /hen a ta, is imposed on -uyers0 consumer surplus and producer surplus -oth decrease. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus (S&: Interpreti)e 2. /hen a ta, is imposed on -uyers0 consumer surplus decreases -ut producer surplus increases. ANS: F DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus (S&: Interpreti)e 3. /hen a ta, is imposed on sellers0 producer surplus decreases -ut consumer surplus increases. ANS: F DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus (S&: Interpreti)e 4. /hen a ta, is imposed on sellers0 consumer surplus and producer surplus -oth decrease. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus (S&: Interpreti)e 5. Ta,es affect mar*et participants -y increasin+ the price paid -y the -uyer and recei)ed -y the seller. ANS: F DIF: 1 !F: "#1 NAT: Analytic $%&: Supply and demand T%': Ta,es (S&: Applicati)e ". Ta,es affect mar*et participants -y increasin+ the price paid -y the -uyer and decreasin+ the price recei)ed -y the seller. ANS: T DIF: 1 !F: "#1 NAT: Analytic $%&: Supply and demand T%': Ta,es (S&: Applicati)e 6. A ta, raises the price recei)ed -y sellers and lowers the price paid -y -uyers. ANS: F DIF: 1 !F: "#1 NAT: Analytic $%&: Supply and demand T%': !fficiency (S&: Interpreti)e 17. Normally0 -oth -uyers and sellers of a +ood -ecome worse off when the +ood is ta,ed. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': /elfare (S&: Interpreti)e 11. /hen a +ood is ta,ed0 the ta, re)enue collected -y the +o)ernment equals the decrease in the welfare of -uyers and sellers caused -y the ta,. ANS: F DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': /elfare 1 Ta, re)enue (S&: Interpreti)e
15
1" &hapter " 8Application: the &osts of Ta,ation

12. A ta, places a wed+e -etween the price -uyers pay and the price sellers recei)e. ANS: T DIF: 1 !F: "#1 NAT: Analytic $%&: Supply and demand T%': !fficiency (S&: Interpreti)e 1.. A ta, on a +ood causes the si9e of the mar*et to increase. ANS: F DIF: 1 !F: "#1 $%&: Supply and demand T%': !fficiency 12. A ta, on a +ood causes the si9e of the mar*et to shrin*. ANS: T DIF: 1 !F: "#1 $%&: Supply and demand T%': !fficiency 13. NAT: Analytic (S&: Interpreti)e NAT: Analytic (S&: Interpreti)e
/hen a ta, is imposed0 the loss of consumer surplus and producer surplus as a result of the ta, e,ceeds the ta, re)enue collected -y the +o)ernment. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': /elfare (S&: Interpreti)e 14. !conomists use the +o)ernment:s ta, re)enue to measure the pu-lic -enefit from a ta,. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': /elfare (S&: Interpreti)e 15. ;ecause ta,es distort incenti)es0 they cause mar*ets to allocate resources inefficiently. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': !fficiency (S&: Interpreti)e 1". Ta,es cause deadwei+ht losses -ecause they pre)ent -uyers and sellers from reali9in+ some of the +ains from trade. ANS: T DIF: 2 !F: "#1 NAT: Analytic $%&: Supply and demand T%': Deadwei+ht loss (S&: Interpreti)e 16. As the price elasticities of supply and demand increase0 the deadwei+ht loss from a ta, increases. ANS: T DIF: 2 !F: "#2 NAT: Analytic $%&: !lasticity T%': !lasticity 1 Deadwei+ht loss (S&: Applicati)e 27. The +reater the elasticity of demand0 the smaller the deadwei+ht loss of a ta,. ANS: F DIF: 2 !F: "#2 NAT: Analytic $%&: !lasticity T%': !lasticity 1 Deadwei+ht loss (S&: Interpreti)e 21. The more inelastic are demand and supply0 the +reater is the deadwei+ht loss of a ta,. ANS: F DIF: 2 !F: "#2 NAT: Analytic $%&: !lasticity T%': !lasticity 1 Deadwei+ht loss (S&: Applicati)e 22. The elasticities of the supply and demand cur)es in the mar*et for ci+arettes affect how much a ta, distorts that mar*et. ANS: T DIF: 2 !F: "#2 NAT: Analytic $%&: !lasticity T%': !lasticity 1 Deadwei+ht loss (S&: Interpreti)e 2.. If a ta, did not induce -uyers or sellers to chan+e their -eha)ior0 it would not cause a deadwei+ht loss. ANS: T DIF: 2 !F: "#2 NAT: Analytic $%&: Supply and demand T%': Deadwei+ht loss (S&: Interpreti)e 22. The most important ta, in the <.S. economy is the ta, on corporations: profits. ANS: F DIF: 1 !F: "#2 NAT: Analytic $%&: Supply and demand T%': $a-or (S&: Definitional 23. The Social Security ta,0 and to a lar+e e,tent0 the federal income ta,0 are la-or ta,es. ANS: T DIF: 1 !F: "#2 NAT: Analytic $%&: Supply and demand T%': $a-or (S&: Interpreti)e
&hapter " 8Application: the &osts of Ta,ation 16 24. Ta,es on la-or tend to increase the num-er of hours that people choose to wor*. ANS: F DIF: 1 !F: "#2 NAT: Analytic $%&: Supply and demand T%': $a-or (S&: Interpreti)e 25. Ta,es on la-or tend to encoura+e the elderly to retire early. ANS: T DIF: 1 !F: "#2 $%&: Supply and demand T%': $a-or NAT: Analytic (S&: Interpreti)e
2". Ta,es on la-or tend to encoura+e second earners to stay at home rather than wor* in the la-or force. ANS: T DIF: 1 !F: "#2 NAT: Analytic $%&: Supply and demand T%': $a-or (S&: Interpreti)e 26. !conomists disa+ree on whether la-or ta,es ha)e a small or lar+e deadwei+ht loss. ANS: T DIF: 1 !F: "#2 NAT: Analytic $%&: Supply and demand T%': $a-or 1 Deadwei+ht loss (S&: Definitional .7. The demand for -read is less elastic than the demand for donuts= hence0 a ta, on -read will create a lar+er deadwei+ht loss than will the same ta, on donuts0 other thin+s equal. ANS: F DIF: 2 !F: "#2 NAT: Analytic $%&: !lasticity T%': !lasticity 1 Deadwei+ht loss (S&: Applicati)e .1. The lar+er the deadwei+ht loss from ta,ation0 the lar+er the cost of +o)ernment pro+rams. ANS: T DIF: 2 !F: "#2 NAT: Analytic $%&: Supply and demand T%': Deadwei+ht loss (S&: Interpreti)e .2. A ta, on insulin is li*ely to cause a )ery lar+e deadwei+ht loss to society. ANS: F DIF: 2 !F: "#2 NAT: Analytic $%&: !lasticity T%': Deadwei+ht loss 1 !lasticity (S&: Applicati)e ... The deadwei+ht loss of a ta, rises e)en more rapidly than the si9e of the ta,. ANS: T DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': Deadwei+ht loss (S&: Interpreti)e .2. As the si9e of a ta, increases0 the +o)ernment>s ta, re)enue rises0 then falls. ANS: T DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': $affer cur)e (S&: Interpreti)e .3. Ta, re)enues increase in direct proportion to increases in the si9e of the ta,. ANS: F DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': Ta, re)enue (S&: Interpreti)e .4. If the si9e of a ta, dou-les0 the deadwei+ht loss dou-les. ANS: F DIF: . !F: "#. NAT: Analytic $%&: Supply and demand T%': Deadwei+ht loss (S&: Applicati)e .5. If the si9e of a ta, triples0 the deadwei+ht loss increases -y a factor of si,. ANS: F DIF: . !F: "#. NAT: Analytic $%&: Supply and demand T%': Deadwei+ht loss (S&: Applicati)e .". A ta, on unimpro)ed land falls entirely on landowners -ecause the supply of land is perfectly inelastic. ANS: T DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': $and ta, (S&: Interpreti)e .6. ;ecause the supply of land is perfectly elastic0 the deadwei+ht loss of a ta, on land is )ery lar+e. ANS: F DIF: 2 !F: "#. NAT: Analytic $%&: !lasticity T%': $and ta, 1 Deadwei+ht loss (S&: Interpreti)e
27 &hapter " 8Application: the &osts of Ta,ation

27. !conomist Arthur $affer made the ar+ument that ta, rates in the <nited States were so hi+h that reducin+ the rates would increase ta, re)enue. ANS: T DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': $affer cur)e (S&: Definitional 21. The $affer cur)e is the cur)e showin+ how ta, re)enue )aries as the si9e of the ta, )aries. ANS: T DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': $affer cur)e (S&: Definitional 22. The result of the lar+e ta, cuts in the first ea+an Administration demonstrated )ery con)incin+ly that Arthur $affer was correct when he asserted that cuts in ta, rates would increase ta, re)enue. ANS: F DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': $affer cur)e (S&: Interpreti)e 2.. The idea that ta, cuts would increase the quantity of la-or supplied0 thus increasin+ ta, re)enue0 -ecame *now as supply#side economics. ANS: T DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': Supply#side economics (S&: Definitional 22. The $affer cur)e illustrates how ta,es in mar*ets with +reater elasticities of demand compare to ta,es in mar*ets with smaller elasticities of supply. ANS: F DIF: 2 !F: "#. NAT: Analytic $%&: Supply and demand T%': $affer cur)e (S&: Definitional 23. The more elastic are supply and demand in a mar*et0 the +reater are the distortions caused -y a ta, on that mar*et0 and the more li*ely it is that a ta, cut in that mar*et will raise ta, re)enue. ANS: T DIF: . !F: "#. NAT: Analytic $%&: !lasticity T%': !lasticity 1 Deadwei+ht loss (S&: Applicati)e 24. /hen the +o)ernment imposes ta,es on -uyers and sellers of a +ood0 society loses some of the -enefits of mar*et efficiency. ANS: T DIF: 1 !F: "#2 NAT: Analytic $%&: Supply and demand T%': !fficiency (S&: Interpreti)e SHORT ANSWER 1. Suppose the +o)ernment le)ies a ta, of the )ertical distance from point A to point ;. <sin+ the +raph shown0 determine the )alue of each of the followin+: a. equili-rium price -efore the ta, -. consumer surplus -efore the ta, c. producer surplus -efore the ta, d. total surplus -efore the ta, e. consumer surplus after the ta, f. producer surplus after the ta, +. total ta, re)enue to the +o)ernment h. total surplus ?consumer surplus@producer surplus@ta, re)enueA after the ta, i. deadwei+ht loss
&hapter " 8Application: the &osts of Ta,ation 21

Price 22 27 1" 14 12 12 17 " 4 2 2 ; A
Supply
Demand
177 277 .77 277 377 477 577 "77 677 1777 Quantity
ANS: a. -. c. d. e. f. +. h. i. DIF: T%': 2. B17 B.0477 B20277 B40777 B677 B477 B.0777 B20377 B10377 . /elfare !F: "#1 (S&: Applicati)e NAT: Analytic $%&: Supply and demand
Cohn has -een in the ha-it of mowin+ /illa>s lawn each wee* for B27. Cohn>s opportunity cost is B130 and /illa would -e willin+ to pay B23 to ha)e her lawn mowed. /hat is the ma,imum ta, the +o)ernment can impose on lawn mowin+ without discoura+in+ Cohn and /illa from continuin+ their mutually -eneficial arran+ementD
ANS: If the ta, is less than B170 there will e,ist a price at which -oth Cohn and /illa will still -enefit from the lawn# mowin+ arran+ement. If the ta, is B170 a price can -e set which will lea)e Cohn and /illa neither -etter off nor worse off from the lawn#mowin+ arran+ement. If the ta, is +reater than B170 all possi-le prices will lea)e at least one of the parties worse off from the lawn#mowin+ arran+ement. DIF: T%': 2 !fficiency !F: "#1 (S&: Applicati)e NAT: Analytic $%&: Supply and demand

.. <se the followin+ +raph shown to fill in the ta-le that follows.
'2
Price
Supply A
'.
;
'2
& F
D
'1
F Demand
E2 E1 Quantity
W THOUT TA! &onsumer surplus 'roducer surplus Ta, re)enue Total surplus
W TH TA!
CHAN"E
ANS:
&onsumer surplus 'roducer surplus Ta, re)enue Total surplus DIF: T%': 2. 2 /elfare W THOUT TA! A@;@& D@F@F None A@;@&@D@F@F !F: "#1 (S&: Applicati)e W TH TA! A F ;@D A@;@D@F NAT: Analytic CHAN"E G?;@&A G?D@FA ?;@DA G?&@FA
$%&: Supply and demand
Suppose that instead of a supply#demand dia+ram0 you are +i)en the followin+ information:
Qs H 177 @ .P Qd H 277 # 2P From this information compute equili-rium price and quantity. Now suppose that a ta, is placed on -uyers so that Qd H 277 # ?2P @ TA. If T H 130 sol)e for the new equili-rium price and quantity. ?Note: P is the price recei)ed -y sellers and P @ T is the price paid -y -uyers.A &ompare these answers for equili-rium price and quantity with your first answers. /hat does this show youD ANS: 'rior to the ta,0 the equili-rium price would -e B47 and the equili-rium quantity would -e 2"7. After the ta, is imposed0 P0 the price recei)ed -y sellers would -e B35. The price paid -y -uyers would -e B52. The quantity sold would -e 251. The new answer shows three o-)ious facts. First0 -uyers pay more with a ta,. Second0 sellers recei)e less with a ta,. Third0 the si9e of the mar*et shrin*s when a ta, is imposed on a product. DIF: T%': . Ta,es !F: "#1 (S&: Analytical NAT: Analytic $%&: Supply and demand
&hapter " 8Application: the &osts of Ta,ation 2. 3. ANS: <sin+ demand and supply dia+rams0 show the difference in deadwei+ht loss -etween ?aA a mar*et with inelastic demand and supply and ?-A a mar*et with elastic demand and supply.
DIF: T%':
2 !F: "#2 Deadwei+ht loss 1 !lasticity
NAT: Analytic (S&: Applicati)e
$%&: !lasticity

4. ANS: Illustrate on three demand#and#supply +raphs how the si9e of a ta, ?small0 medium and lar+eA can alter total re)enue and deadwei+ht loss.
DIF: T%':
2 !F: Deadwei+ht loss
"#.
NAT: Analytic (S&: Applicati)e
$%&: Supply and demand
Sec## $ Application: The Costs of Taxation

%ULT &LE CHO CE 1. In 15540 the American e)olution was spar*ed -y an+er o)er a. the e,tra)a+ant lifestyle of ;ritish royalty. -. the crimes of ;ritish soldiers stationed in the American colonies. c. ;ritish ta,es imposed on the American colonies. d. the failure of the ;ritish to protect American colonists from attac* -y hostile Nati)e Americans. DIF: 1 !F: $%&: Supply and demand "#7 T%': Ta,es
ANS: & NAT: Analytic (S&: Definitional 2.
An+er o)er ;ritish ta,es played a si+nificant role in -rin+in+ a-out the a. election of Cohn Adams as the second American president. -. American e)olution. c. /ar of 1"12. d. Ino new ta,esJ clause in the <.S. &onstitution.
&hapter " 8Application: the &osts of Ta,ation 23 ANS: ; NAT: Analytic (S&: Definitional .. DIF: 1 !F: $%&: Supply and demand "#7 T%': Ta,es
/ho once said that ta,es are the price we pay for a ci)ili9ed societyD a. Aristotle -. Feor+e /ashin+ton c. %li)er /endell Kolmes0 Cr. d. onald ea+an DIF: 1 !F: $%&: Supply and demand "#7 T%': Ta,es
/ho once said that ta,es are the price we pay for a ci)ili9ed societyD a. (ilton Friedman -. Theodore oose)elt c. Arthur $affer d. %li)er /endell Kolmes0 Cr. DIF: 1 !F: $%&: Supply and demand "#7 T%': Ta,es
ANS: D NAT: Analytic (S&: Definitional 3.
To fully understand how ta,es affect economic well#-ein+0 we must a. assume that economic well#-ein+ is not affected if all ta, re)enue is spent on +oods and ser)ices for the people who are -ein+ ta,ed. -. compare the ta,es raised in the <nited States with those raised in other countries0 especially France. c. compare the reduced welfare of -uyers and sellers to the amount of re)enue the +o)ernment raises. d. ta*e into account the fact that almost all ta,es reduce the welfare of -uyers0 increase the welfare of sellers0 and raise re)enue for the +o)ernment. DIF: 2 !F: $%&: Supply and demand "#7 T%': Ta,es 1 !conomic welfare
ANS: & NAT: Analytic (S&: Interpreti)e 4.
To fully understand how ta,es affect economic well#-ein+0 we must compare the a. -enefit to -uyers with the loss to sellers. -. price paid -y -uyers to the price recei)ed -y sellers. c. profits earned -y firms to the losses incurred -y consumers. d. decrease in total surplus to the increase in re)enue raised -y the +o)ernment. DIF: 2 !F: $%&: Supply and demand "#7 T%': Ta,es 1 !conomic welfare
ANS: D NAT: Analytic (S&: Interpreti)e 5.
To fully understand how ta,es affect economic well#-ein+0 we must compare the a. consumer surplus to the producer surplus. -. price paid -y -uyers to the price recei)ed -y sellers. c. reduced welfare of -uyers and sellers to the re)enue raised -y the +o)ernment. d. consumer surplus to the deadwei+ht loss. DIF: 2 !F: $%&: Supply and demand "#7 T%': Ta,es 1 !conomic welfare
ANS: & NAT: Analytic (S&: Interpreti)e
Sec#' $ Application: The Costs of Taxation $ The (ea)*ei+ht Loss of Taxation

%ULT &LE CHO CE 1. /hen a ta, is le)ied on a +ood0 the -uyers and sellers of the +ood share the -urden0 a. pro)ided the ta, is le)ied on the sellers. -. pro)ided the ta, is le)ied on the -uyers. c. pro)ided a portion of the ta, is le)ied on the -uyers0 with the remainin+ portion le)ied on the sellers. d. re+ardless of how the ta, is le)ied. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
A ta, on a +ood a. raises the price that -uyers effecti)ely pay and raises the price that sellers effecti)ely recei)e. -. raises the price that -uyers effecti)ely pay and lowers the price that sellers effecti)ely recei)e. c. lowers the price that -uyers effecti)ely pay and raises the price that sellers effecti)ely recei)e. d. lowers the price that -uyers effecti)ely pay and lowers the price that sellers effecti)ely recei)e. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Interpreti)e ..
/hen a ta, is placed on a product0 the price paid -y -uyers a. rises0 and the price recei)ed -y sellers rises. -. rises0 and the price recei)ed -y sellers falls. c. falls0 and the price recei)ed -y sellers rises. d. falls0 and the price recei)ed -y sellers falls. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Interpreti)e 2.
A ta, affects a. -uyers only. -. sellers only. c. -uyers and sellers only. d. -uyers0 sellers0 and the +o)ernment. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
The +o)ernment:s -enefit from a ta, can -e measured -y a. consumer surplus. -. producer surplus. c. ta, re)enue. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
/hat happens to the total surplus in a mar*et when the +o)ernment imposes a ta,D a. Total surplus increases -y the amount of the ta,. -. Total surplus increases -ut -y less than the amount of the ta,. c. Total surplus decreases. d. Total surplus is unaffected -y the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
ANS: & NAT: Analytic (S&: Applicati)e
&hapter " 8Application: the &osts of Ta,ation 25 5. /hen a +ood is ta,ed0 a. -oth -uyers and sellers of the +ood are made worse off. -. only -uyers are made worse off0 -ecause they ultimately -ear the -urden of the ta,. c. only sellers are made worse off0 -ecause they ultimately -ear the -urden of the ta,. d. neither -uyers nor sellers are made worse off0 since ta, re)enue is used to pro)ide +oods and ser)ices that would otherwise not -e pro)ided in a mar*et economy. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
ANS: A NAT: Analytic (S&: Interpreti)e ".
To measure the +ains and losses from a ta, on a +ood0 economists use the tools of a. macroeconomics. -. welfare economics. c. international#trade theory. d. circular#flow analysis. DIF: 1 !F: $%&: Supply and demand "#1 T%': /elfare
/hen a ta, is imposed on a +ood0 the a. supply cur)e for the +ood always shifts. -. demand cur)e for the +ood always shifts. c. amount of the +ood that -uyers are willin+ to -uy at each price always remains unchan+ed. d. equili-rium quantity of the +ood always decreases. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
A ta, le)ied on the sellers of a +ood shifts the a. supply cur)e upward ?or to the leftA. -. supply cur)e downward ?or to the ri+htA. c. demand cur)e upward ?or to the ri+htA. d. demand cur)e downward ?or to the leftA. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: A NAT: Analytic (S&: Interpreti)e 11.
A ta, le)ied on the -uyers of a +ood shifts the a. supply cur)e upward ?or to the leftA. -. supply cur)e downward ?or to the ri+htA. c. demand cur)e downward ?or to the leftA. d. demand cur)e upward ?or to the ri+htA. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
If a ta, shifts the supply cur)e upward ?or to the leftA0 we can infer that the ta, was le)ied on a. -uyers of the +ood. -. sellers of the +ood. c. -oth -uyers and sellers of the +ood. d. /e cannot infer anythin+ -ecause the shift descri-ed is not consistent with a ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Interpreti)e

1.. If a ta, shifts the supply cur)e downward ?or to the ri+htA0 we can infer that the ta, was le)ied on a. -uyers of the +ood. -. sellers of the +ood. c. -oth -uyers and sellers of the +ood. d. /e cannot infer anythin+ -ecause the shift descri-ed is not consistent with a ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
If a ta, shifts the demand cur)e downward ?or to the leftA0 we can infer that the ta, was le)ied on a. -uyers of the +ood. -. sellers of the +ood. c. -oth -uyers and sellers of the +ood. d. /e cannot infer anythin+ -ecause the shift descri-ed is not consistent with a ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
If a ta, shifts the demand cur)e upward ?or to the ri+htA0 we can infer that the ta, was le)ied on a. -uyers of the +ood. -. sellers of the +ood. c. -oth -uyers and sellers of the +ood. d. /e cannot infer anythin+ -ecause the shift descri-ed is not consistent with a ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
/hen a ta, is imposed on the -uyers of a +ood0 the demand cur)e shifts a. downward -y the amount of the ta,. -. upward -y the amount of the ta,. c. downward -y less than the amount of the ta,. d. upward -y more than the amount of the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
/hen a ta, is imposed on the sellers of a +ood0 the a. demand cur)e shifts downward -y less than the amount of the ta,. -. demand cur)e shifts downward -y the amount of the ta,. c. supply cur)e shifts upward -y less than the amount of the ta,. d. supply cur)e shifts upward -y the amount of the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: D NAT: Analytic (S&: Interpreti)e 1".
A ta, placed on -uyers of tires shifts the a. demand cur)e for tires downward0 decreasin+ the price recei)ed -y sellers of tires and causin+ the quantity of tires to increase. -. demand cur)e for tires downward0 decreasin+ the price recei)ed -y sellers of tires and causin+ the quantity of tires to decrease. c. supply cur)e for tires upward0 decreasin+ the effecti)e price paid -y -uyers of tires and causin+ the quantity of tires to increase. d. supply cur)e for tires upward0 increasin+ the effecti)e price paid -y -uyers of tires and causin+ the quantity of tires to decrease. DIF: . !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Applicati)e
&hapter " 8Application: the &osts of Ta,ation 26 16. Suppose a ta, is imposed on the -uyers of fast#food French fries. The -urden of the ta, will a. fall entirely on the -uyers of fast#food French fries. -. fall entirely on the sellers of fast#food French fries. c. -e shared equally -y the -uyers and sellers of fast#food French fries. d. -e shared -y the -uyers and sellers of fast#food French fries -ut not necessarily equally. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
It does not matter whether a ta, is le)ied on the -uyers or the sellers of a +ood -ecause a. sellers always -ear the full -urden of the ta,. -. -uyers always -ear the full -urden of the ta,. c. -uyers and sellers will share the -urden of the ta,. d. None of the a-o)e is correct= the incidence of the ta, does depend on whether the -uyers or the sellers are required to pay the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
/hen alcohol is ta,ed and sellers of alcohol are required to pay the ta, to the +o)ernment0 a. the quantity of alcohol -ou+ht and sold in the mar*et is reduced. -. the price paid -y -uyers of alcohol decreases. c. the demand for alcohol decreases. d. there is a mo)ement downward and to the ri+ht alon+ the demand cur)e for alcohol. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
%ne result of a ta,0 re+ardless of whether the ta, is placed on the -uyers or the sellers0 is that the a. si9e of the mar*et is unchan+ed. -. price the seller effecti)ely recei)es is hi+her. c. supply cur)e for the +ood shifts upward -y the amount of the ta,. d. ta, reduces the welfare of -oth -uyers and sellers. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es 1 /elfare
ANS: D NAT: Analytic (S&: Interpreti)e 2..
/hen a ta, is placed on the -uyers of a product0 a result is that -uyers effecti)ely pay a. less than -efore the ta,0 and sellers effecti)ely recei)e less than -efore the ta,. -. less than -efore the ta,0 and sellers effecti)ely recei)e more than -efore the ta,. c. more than -efore the ta,0 and sellers effecti)ely recei)e less than -efore the ta,. d. more than -efore the ta,0 and sellers effecti)ely recei)e more than -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
/hen a ta, is le)ied on a +ood0 a. neither -uyers nor sellers are made worse off. -. only sellers are made worse off. c. only -uyers are made worse off. d. -oth -uyers and sellers are made worse off. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es 1 /elfare
ANS: D NAT: Analytic (S&: Interpreti)e
.7 &hapter " 8Application: the &osts of Ta,ation

23. /hen a ta, is le)ied on the -uyers of a +ood0 the a. supply cur)e shifts upward -y the amount of the ta,. -. quantity supplied increases for all concei)a-le prices of the +ood. c. -uyers of the +ood will send ta, payments to the +o)ernment. d. demand cur)e shifts to the ri+ht -y the hori9ontal distance of the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
/hen a ta, is le)ied on the sellers of a +ood0 the a. supply cur)e shifts upward -y the amount of the ta,. -. quantity demanded decreases for all concei)a-le prices of the +ood. c. quantity supplied increases for all concei)a-le prices of the +ood. d. None of the a-o)e is correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
A B2.77 ta, per +allon of paint placed on the sellers of paint will shift the supply cur)e a. downward -y e,actly B2.77. -. downward -y less than B2.77. c. upward -y e,actly B2.77. d. upward -y less than B2.77. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
ANS: & NAT: Analytic (S&: Interpreti)e 2".
/hen a ta, on a +ood is enacted0 a. -uyers and sellers share the -urden of the ta, re+ardless of whether the ta, is le)ied on -uyers or on sellers. -. -uyers always -ear the full -urden of the ta,. c. sellers always -ear the full -urden of the ta,. d. sellers -ear the full -urden of the ta, if the ta, is le)ied on them= -uyers -ear the full -urden of the ta, if the ta, is le)ied on them. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
A ta, placed on a +ood a. causes the effecti)e price to sellers to increase. -. affects the welfare of -uyers of the +ood -ut not the welfare of sellers. c. causes the equili-rium quantity of the +ood to decrease. d. creates a -urden that is usually -orne entirely -y the sellers of the +ood. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
ANS: & NAT: Analytic (S&: Interpreti)e .7.
/hen a ta, is le)ied on -uyers of a +ood0 a. +o)ernment collects too little re)enue to Lustify the ta, if the equili-rium quantity of the +ood decreases as a result of the ta,. -. there is an increase in the quantity of the +ood supplied. c. a wed+e is placed -etween the price -uyers pay and the price sellers effecti)ely recei)e. d. the effecti)e price to -uyers decreases -ecause the demand cur)e shifts leftward. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
&hapter " 8Application: the &osts of Ta,ation .1 .1. /hen a ta, is le)ied on a +ood0 a. +o)ernment collects re)enues which mi+ht Lustify the loss in total welfare. -. there is a decrease in the quantity of the +ood -ou+ht and sold in the mar*et. c. a wed+e is placed -etween the price -uyers pay and the price sellers effecti)ely recei)e. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: D NAT: Analytic (S&: Applicati)e .2.
/hen a ta, is le)ied on a +ood0 a. +o)ernment re)enues e,ceed the loss in total welfare. -. there is a decrease in the quantity of the +ood -ou+ht and sold in the mar*et. c. the price that sellers recei)e e,ceeds the price that -uyers pay. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Applicati)e ...
The -enefit to -uyers of participatin+ in a mar*et is measured -y a. the price elasticity of demand. -. consumer surplus. c. the ma,imum amount that -uyers are willin+ to pay for the +ood. d. the equili-rium price. DIF: 1 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: ; NAT: Analytic (S&: Interpreti)e .2.
The -enefit to -uyers of participatin+ in a mar*et is measured -y a. consumer surplus. -. producer surplus. c. total surplus. d. deadwei+ht loss. DIF: 1 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: A NAT: Analytic (S&: Interpreti)e .3.
The -enefit that +o)ernment recei)es from a ta, is measured -y a. the chan+e in the equili-rium quantity of the +ood. -. the chan+e in the equili-rium price of the +ood. c. ta, re)enue. d. total surplus. DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
ANS: & NAT: Analytic (S&: Interpreti)e .4.
The -enefit that +o)ernment recei)es from a ta, is measured -y a. deadwei+ht loss. -. consumer surplus. c. ta, incidence. d. ta, re)enue. DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
ANS: D NAT: Analytic (S&: Interpreti)e

.5. If T represents the si9e of the ta, on a +ood and E represents the quantity of the +ood that is sold0 total ta, re)enue recei)ed -y +o)ernment can -e e,pressed as a. T8E. -. T@E. c. T,E. d. ?T,EA8E. DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
ANS: & NAT: Analytic (S&: Interpreti)e .".
/hen a ta, is le)ied on -uyers0 the a. supply cur)es shifts upward -y the amount of the ta,. -. ta, creates a wed+e -etween the price -uyers effecti)ely pay and the price sellers recei)e. c. ta, has no effect on the well#-ein+ of sellers. d. All of the a-o)e are correct. DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Interpreti)e .6.
For the purpose of analy9in+ the +ains and losses from a ta, on a +ood0 we use ta, re)enue as a direct measure of the a. +o)ernment>s -enefit from the ta,. -. +o)ernment>s loss from the ta,. c. deadwei+ht loss of the ta,. d. o)erall net +ain to society of the ta,. DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
The decrease in total surplus that results from a mar*et distortion0 such as a ta,0 is called a a. wed+e loss. -. re)enue loss. c. deadwei+ht loss. d. consumer surplus loss. DIF: 1 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
A ta, on a +ood a. +i)es -uyers an incenti)e to -uy more of the +ood than they otherwise would -uy. -. +i)es sellers an incenti)e to produce less of the +ood than they otherwise would produce. c. creates a -enefit to the +o)ernment0 the si9e of which e,ceeds the loss in surplus to -uyers and sellers. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
/hen the price of a +ood is measured in dollars0 then the si9e of the deadwei+ht loss that results from ta,in+ that +ood is measured in a. units of the +ood that is -ein+ ta,ed. -. units of a related +ood that is not -ein+ ta,ed. c. dollars. d. percenta+e chan+e. DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: & NAT: Analytic (S&: Analytical
&hapter " 8Application: the &osts of Ta,ation .. 2.. The -enefit to sellers of participatin+ in a mar*et is measured -y the a. amount of ta,es collected on sales of the +ood. -. producer surplus. c. amount sellers recei)e for their product. d. sellers> willin+ness to sell. DIF: 1 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
/hen the +o)ernment places a ta, on a product0 the cost of the ta, to -uyers and sellers a. is less than the re)enue raised from the ta, -y the +o)ernment. -. is equal to the re)enue raised from the ta, -y the +o)ernment. c. e,ceeds the re)enue raised from the ta, -y the +o)ernment. d. /ithout additional information0 such as the elasticity of demand for this product0 it is impossi-le to compare the cost of a ta, to -uyers and sellers with ta, re)enue. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es 1 /elfare
ANS: & NAT: Analytic (S&: Applicati)e 23.
elati)e to a situation in which +asoline is not ta,ed0 the imposition of a ta, on +asoline causes the quantity of +asoline demanded to a. decrease and the quantity of +asoline supplied to decrease. -. decrease and the quantity of +asoline supplied to increase. c. increase and the quantity of +asoline supplied to decrease. d. increase and the quantity of +asoline supplied to increase. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
/hich of the followin+ quantities decrease in response to a ta, on a +oodD a. the equili-rium quantity in the mar*et for the +ood0 the effecti)e price of the +ood paid -y -uyers0 and consumer surplus -. the equili-rium quantity in the mar*et for the +ood0 producer surplus0 and the well#-ein+ of -uyers of the +ood c. the effecti)e price recei)ed -y sellers of the +ood0 the wed+e -etween the effecti)e price paid -y -uyers and the effecti)e price recei)ed -y sellers0 and consumer surplus d. None of the a-o)e is necessarily correct unless we *now whether the ta, is le)ied on -uyers or on sellers. DIF: . !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Applicati)e 25.
For a +ood that is ta,ed0 the area on the rele)ant supply#and#demand +raph that represents +o)ernment:s ta, re)enue is a a. trian+le. -. rectan+le. c. trape9oid. d. None of the a-o)e is correct= +o)ernment:s ta, re)enue is the area -etween the supply and demand cur)es0 a-o)e the hori9ontal a,is0 and -elow the effecti)e price to -uyers. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Interpreti)e

2". For a +ood that is ta,ed0 the area on the rele)ant supply#and#demand +raph that represents +o)ernment:s ta, re)enue is a. smaller than the area that represents the loss of consumer surplus and producer surplus caused -y the ta,. -. -ounded -y the supply cur)e0 the demand cur)e0 the effecti)e price paid -y -uyers0 and the effecti)e price recei)ed -y sellers. c. a ri+ht trian+le. d. a trian+le0 -ut not necessarily a ri+ht trian+le. DIF: . !F: $%&: Supply and demand "#1 T%': Ta, re)enue
ANS: A NAT: Analytic (S&: Applicati)e 26.
Total surplus with a ta, is equal to a. consumer surplus plus producer surplus. -. consumer surplus minus producer surplus. c. consumer surplus plus producer surplus minus ta, re)enue. d. consumer surplus plus producer surplus plus ta, re)enue. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
Ta,es cause deadwei+ht losses -ecause they a. lead to losses in surplus for consumers and for producers that0 when ta*en to+ether0 e,ceed ta, re)enue collected -y the +o)ernment. -. distort incenti)es to -oth -uyers and sellers. c. pre)ent -uyers and sellers from reali9in+ some of the +ains from trade. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Ta,es cause deadwei+ht losses -ecause ta,es a. reduce the sum of producer and consumer surpluses -y more than the amount of ta, re)enue. -. pre)ent -uyers and sellers from reali9in+ some of the +ains from trade. c. cause mar+inal -uyers and mar+inal sellers to lea)e the mar*et0 causin+ the quantity sold to fall. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Deadwei+ht loss measures the loss a. in a mar*et to -uyers and sellers that is not offset -y an increase in +o)ernment re)enue. -. in re)enue to the +o)ernment when -uyers choose to -uy less of the product -ecause of the ta,. c. of equality in a mar*et due to +o)ernment inter)ention. d. of total re)enue to -usiness firms due to the price wed+e caused -y the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: A NAT: Analytic (S&: Interpreti)e 3..
The loss in total surplus resultin+ from a ta, is called a. a deficit. -. economic loss. c. deadwei+ht loss. d. inefficiency. DIF: 1 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: & NAT: Analytic (S&: Definitional
&hapter " 8Application: the &osts of Ta,ation .3 32. Deadwei+ht loss is the a. decline in total surplus that results from a ta,. -. decline in +o)ernment re)enue when ta,es are reduced in a mar*et. c. decline in consumer surplus when a ta, is placed on -uyers. d. loss of profits to -usiness firms when a ta, is imposed. DIF: 1 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: A NAT: Analytic (S&: Definitional 33.
A deadwei+ht loss is a consequence of a ta, on a +ood -ecause the ta, a. induces the +o)ernment to increase its e,penditures. -. induces -uyers to consume less0 and sellers to produce less. c. increases the equili-rium price in the mar*et. d. imposes a loss on -uyers that is +reater than the loss to sellers. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
For +ood A0 the supply cur)e is the typical upward#slopin+ strai+ht line0 and the demand cur)e is the typical downward#slopin+ strai+ht line. /hen +ood A is ta,ed0 the area on the rele)ant supply#and#demand +raph that represents the deadwei+ht loss is a. lar+er than the area that represents consumer surplus in the a-sence of the ta,. -. lar+er than the area that represents +o)ernment:s ta, re)enue. c. a trian+le. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
For +ood ;0 the supply cur)e is the typical upward#slopin+ strai+ht line0 and the demand cur)e is the typical downward#slopin+ strai+ht line. /hen +ood ; is ta,ed0 the area on the rele)ant supply#and#demand +raph that represents a. +o)ernment:s ta, re)enue is a rectan+le. -. the deadwei+ht loss of the ta, is a trian+le. c. the loss of consumer surplus caused -y the ta, is neither a rectan+le nor a trian+le. d. All of the a-o)e are correct. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: D NAT: Analytic (S&: Interpreti)e 3".
For +ood M0 the supply cur)e is the typical upward#slopin+ strai+ht line0 and the demand cur)e is the typical downward#slopin+ strai+ht line. A ta, of B17 per unit is imposed on +ood M. The ta, reduces the equili-rium quantity in the mar*et -y 277 units. The deadwei+ht loss from the ta, is a. B20777. -. B10777. c. B377. d. B237. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
In the mar*et for wid+ets0 the supply cur)e is the typical upward#slopin+ strai+ht line0 and the demand cur)e is the typical downward#slopin+ strai+ht line. The equili-rium quantity in the mar*et for wid+ets is 277 per month when there is no ta,. Then a ta, of B3 per wid+et is imposed. As a result0 the +o)ernment is a-le to raise B537 per month in ta, re)enue. /e can conclude that the equili-rium quantity of wid+ets has fallen -y a. 23 per month. -. 37 per month. c. 53 per month. d. 177 per month.

ANS: ; NAT: Analytic (S&: Applicati)e 47. DIF: . !F: $%&: Supply and demand "#1 T%': Ta,es
In the mar*et for wid+ets0 the supply cur)e is the typical upward#slopin+ strai+ht line0 and the demand cur)e is the typical downward#slopin+ strai+ht line. The equili-rium quantity in the mar*et for wid+ets is 277 per month when there is no ta,. Then a ta, of B3 per wid+et is imposed. As a result0 the +o)ernment is a-le to raise B537 per month in ta, re)enue. /e can conclude that the post ta, quantity of wid+ets is a. 37 per month. -. 53 per month. c. 177 per month. d. 137 per month. DIF: . !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: D NAT: Analytic (S&: Applicati)e 41.
In the mar*et for wid+ets0 the supply cur)e is the typical upward#slopin+ strai+ht line0 and the demand cur)e is the typical downward#slopin+ strai+ht line. The equili-rium quantity in the mar*et for wid+ets is 277 per month when there is no ta,. Then a ta, of B3 per wid+et is imposed. The price paid -y -uyers increases -y B2 and the after#ta, price recei)ed -y sellers falls -y B.. The +o)ernment is a-le to raise B537 per month in re)enue from the ta,. The deadwei+ht loss from the ta, is a. B237. -. B123. c. B53. d. B37. DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: ; NAT: Analytic (S&: Applicati)e Figure 8-1

Price
Supply
'> '>>
C N $ I O ; N
Demand Quantity
'>>>
42.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. Total surplus -efore the ta, is measured -y the area a. I@O. -. C@N@$@(. c. $@(@O. d. I@C@N@$@(@O. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
ANS: D NAT: Analytic (S&: Analytical
&hapter " 8Application: the &osts of Ta,ation .5 4.. Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y I@C@N@$@(@O represents a. total surplus -efore the ta,. -. total surplus after the ta,. c. consumer surplus -efore the ta,. d. deadwei+ht loss from the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
ANS: A NAT: Analytic (S&: Analytical 42.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. Total surplus after the ta, is measured -y the area a. I@O. -. C@N@$@(. c. I@O@;. d. I@C@N@$@(@O. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
ANS: ; NAT: Analytic (S&: Analytical 43.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y C@N@$@( represents a. total surplus after the ta,. -. total surplus -efore the ta,. c. deadwei+ht loss from the ta,. d. ta, re)enue. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y N@$ represents a. ta, re)enue. -. consumer surplus -efore the ta,. c. producer surplus after the ta,. d. total surplus -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The ta, re)enue is measured -y the area a. N@$. -. I@O. c. C@N@$@(. d. I@C@N@$@(@O. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
ANS: A NAT: Analytic (S&: Analytical 4".
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y $@(@O represents a. consumer surplus after the ta,. -. consumer surplus -efore the ta,. c. producer surplus after the ta,. d. producer surplus -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
ANS: D NAT: Analytic (S&: Analytical
." &hapter " 8Application: the &osts of Ta,ation

46. Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The producer surplus -efore the ta, is measured -y the area a. I@C@N. -. I@O. c. $@(@O. d. (. DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
ANS: & NAT: Analytic (S&: Analytical 57.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y ( represents a. consumer surplus after the ta,. -. consumer surplus -efore the ta,. c. producer surplus after the ta,. d. producer surplus -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
ANS: & NAT: Analytic (S&: Analytical 51.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The producer surplus after the ta, is measured -y the area a. (. -. $@(@N@O@;. c. $@(@O. d. C. DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y C@N@I represents a. consumer surplus after the ta,. -. consumer surplus -efore the ta,. c. producer surplus after the ta,. d. producer surplus -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: ; NAT: Analytic (S&: Analytical 5..
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The consumer surplus -efore the ta, is measured -y the area a. (. -. $@(@O. c. C. d. C@N@I. DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: D NAT: Analytic (S&: Analytical 52.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y C represents a. consumer surplus after the ta,. -. consumer surplus -efore the ta,. c. producer surplus after the ta,. d. producer surplus -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: A NAT: Analytic (S&: Analytical
&hapter " 8Application: the &osts of Ta,ation .6 53. Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The consumer surplus after the ta, is measured -y the area a. C@N@I. -. C. c. (. d. $@(@O. DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: ; NAT: Analytic (S&: Analytical 54.
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The area measured -y I@O represents the a. deadwei+ht loss due to the ta,. -. loss in consumer surplus due to the ta,. c. loss in producer surplus due to the ta,. d. total surplus -efore the ta,. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Refer to Fi+,re 8$'- Suppose the +o)ernment imposes a ta, of ': # ':::. The deadwei+ht loss due to the ta, is measured -y the area a. C@N@$@(. -. C@N@$@(@N. c. I@O. d. I@O@;. DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
ANS: & NAT: Analytic (S&: Analytical
Figure 8-2 The )ertical distance -etween points A and ; represents a ta, in the mar*et.
Price 12 11 17 6 " 5 4 3 2 . 2 1 7.3 1 1.3 2 2.3 . ..3 ; A
Supply
Demand
2 2.3 3 Quantity
5".
Refer to Fi+,re 8$.- The imposition of the ta, causes the quantity sold to a. increase -y 1 unit. -. decrease -y 1 unit. c. increase -y 2 units. d. decrease -y 2 units.

ANS: ; NAT: Analytic (S&: Applicati)e 56. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
Refer to Fi+,re 8$.- The imposition of the ta, causes the price paid -y -uyers to a. decrease -y B2. -. increase -y B.. c. decrease -y B2. d. increase -y B3. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: ; NAT: Analytic (S&: Applicati)e "7.
Refer to Fi+,re 8$.- The imposition of the ta, causes the price recei)ed -y sellers to a. decrease -y B2. -. increase -y B.. c. decrease -y B2. d. increase -y B3. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: A NAT: Analytic (S&: Applicati)e "1.
Refer to Fi+,re 8$.- The amount of the ta, on each unit of the +ood is a. B1. -. B2. c. B3. d. B6. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: & NAT: Analytic (S&: Applicati)e "2.
Refer to Fi+,re 8$.- The per#unit -urden of the ta, on -uyers is a. B2. -. B.. c. B2. d. B3. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
ANS: ; NAT: Analytic (S&: Applicati)e "..
Refer to Fi+,re 8$.- The per#unit -urden of the ta, on sellers is a. B2. -. B.. c. B2. d. B3. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
Refer to Fi+,re 8$.- The amount of ta, re)enue recei)ed -y the +o)ernment is a. B2.37. -. B2. c. B3. d. B6. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
&hapter " 8Application: the &osts of Ta,ation 21 "3. Refer to Fi+,re 8$.- The amount of deadwei+ht loss as a result of the ta, is a. B2.37. -. B3. c. B5.37. d. B17. DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Refer to Fi+,re 8$.- The loss of consumer surplus as a result of the ta, is a. B1.37. -. B.. c. B2.37. d. B4. DIF: . !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: & NAT: Analytic (S&: Applicati)e "5.
Refer to Fi+,re 8$.- The loss of producer surplus as a result of the ta, is a. B1. -. B2. c. B.. d. B2. DIF: . !F: $%&: Supply and demand "#1 T%': 'roducer surplus
ANS: & NAT: Analytic (S&: Applicati)e "".
Refer to Fi+,re 8$.- &onsumer surplus without the ta, is a. B40 and consumer surplus with the ta, is B1.37. -. B40 and consumer surplus with the ta, is B2.37. c. B170 and consumer surplus with the ta, is B1.37. d. B170 and consumer surplus with the ta, is B2.37. DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
Refer to Fi+,re 8$.- 'roducer surplus without the ta, is a. B20 and producer surplus with the ta, is B1. -. B20 and producer surplus with the ta, is B.. c. B170 and producer surplus with the ta, is B1. d. B170 and producer surplus with the ta, is B.. DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
ANS: A NAT: Analytic (S&: Applicati)e 67.
Refer to Fi+,re 8$.- Total surplus without the ta, is a. B170 and total surplus with the ta, is B2.37. -. B170 and total surplus with the ta, is B5.37. c. B270 and total surplus with the ta, is B2.37. d. B270 and total surplus with the ta, is B5.37. DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
ANS: ; NAT: Analytic (S&: Applicati)e

61. Refer to Fi+,re 8$.- The loss of consumer surplus associated with some -uyers droppin+ out of the mar*et as a result of the ta, is a. B7. -. B1.37. c. B.. d. B2.37. DIF: . !F: $%&: Supply and demand "#1 T%': &onsumer surplus
Refer to Fi+,re 8$.- The loss of consumer surplus for those -uyers of the +ood who continue to -uy it after the ta, is imposed is a. B7. -. B1.37. c. B.. d. B2.37. DIF: . !F: $%&: Supply and demand "#1 T%': &onsumer surplus
ANS: & NAT: Analytic (S&: Applicati)e 6..
Refer to Fi+,re 8$.- The loss of producer surplus associated with some sellers droppin+ out of the mar*et as a result of the ta, is a. B7. -. B1. c. B2. d. B.. DIF: . !F: $%&: Supply and demand "#1 T%': 'roducer surplus
Refer to Fi+,re 8$.- The loss of producer surplus for those sellers of the +ood who continue to sell it after the ta, is imposed is a. B7. -. B1. c. B2. d. B.. DIF: . !F: $%&: Supply and demand "#1 T%': 'roducer surplus
&hapter " 8Application: the &osts of Ta,ation 2. Figure 8-3 The )ertical distance -etween points A and & represents a ta, in the mar*et.
'2 Price
Supply
A
'.
'2
'1
&
Demand
E1 E2 Quantity
63.
Refer to Fi+,re 8$/. The equili-rium price -efore the ta, is imposed is a. '1. -. '2. c. '.. d. '2. DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
Refer to Fi+,re 8$/. The price that -uyers effecti)ely pay after the ta, is imposed is a. '1. -. '2. c. '.. d. '2. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: & NAT: Analytic (S&: Applicati)e 65.
Refer to Fi+,re 8$/. The price that sellers effecti)ely recei)e after the ta, is imposed is a. '1. -. '2. c. '.. d. '2. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
ANS: A NAT: Analytic (S&: Applicati)e 6".
Refer to Fi+,re 8$/. The per unit -urden of the ta, on -uyers is a. '. # '1. -. '. # '2. c. '2 # '1. d. '2 # '.. DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
Refer to Fi+,re 8$/. The per#unit -urden of the ta, on sellers is a. '. # '1. -. '. # '2. c. '2 # '1. d. '2 # '..

ANS: & NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': Ta, -urden
177. Refer to Fi+,re 8$/. The amount of the ta, on each unit of the +ood is a. '. # '1. -. '. # '2. c. '2 # '1. d. '2 # '.. ANS: A NAT: Analytic (S&: Applicati)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
171. Refer to Fi+,re 8$/. The amount of ta, re)enue recei)ed -y the +o)ernment is equal to the area a. '.A&'1. -. A;&. c. '2DA'.. d. '1&D'2. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
172. Refer to Fi+,re 8$/. The amount of deadwei+ht loss associated with the ta, is equal to a. '.A&'1. -. A;&. c. '2AD'.. d. '1D&'2. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
17.. Refer to Fi+,re 8$/. The loss in consumer surplus caused -y the ta, is measured -y the area a. '1'.A&. -. '.A;'2. c. '1'.A;&. d. A;&. ANS: ; NAT: Analytic (S&: Analytical DIF: . !F: $%&: Supply and demand "#1 T%': &onsumer surplus
172. Refer to Fi+,re 8$/. The loss in producer surplus caused -y the ta, is measured -y the area a. A;&. -. '1'.A;&. c. '1'2;&. d. '1&7. ANS: & NAT: Analytic (S&: Analytical DIF: . !F: $%&: Supply and demand "#1 T%': 'roducer surplus
173. Refer to Fi+,re 8$/. /hich of the followin+ equations is )alid for the ta, re)enue that the ta, pro)ides to the +o)ernmentD a. Ta, re)enue H ?'2 # '1A,E1 -. Ta, re)enue H ?'. # '1A,E1 c. Ta, re)enue H ?'. # '2A,E1 d. Ta, re)enue H ?'. # '1A,?E2 # E1A ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
&hapter " 8Application: the &osts of Ta,ation 23 174. Refer to Fi+,re 8$/. /hich of the followin+ equations is )alid for the deadwei+ht loss of the ta,D a. Deadwei+ht loss H ?182A?'2 # '1A?E2 @ E1A -. Deadwei+ht loss H ?182A?'. # '1A?E2 @ E1A c. Deadwei+ht loss H ?182A?'. # '2A?E2 # E1A d. Deadwei+ht loss H ?182A?'. # '1A?E2 # E1A ANS: D NAT: Analytic (S&: Analytical DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
.7 2" 24 22 22 27 1" 14 12 12 17 " 4 2 2 17 27 .7 27 37 47 57 "7 67 177 117 127 1.7 127 137 147 157 Quantity ; A Price
Supply
Demand
175. Refer to Fi+,re 8$0. The equili-rium price -efore the ta, is imposed is a. B220 and the equili-rium quantity is 57. -. B140 and the equili-rium quantity is 177. c. B170 and the equili-rium quantity is 57. d. B"0 and the equili-rium quantity is 177. ANS: ; NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
17". Refer to Fi+,re 8$0. The price that -uyers effecti)ely pay after the ta, is imposed is a. B22. -. B14. c. B12. d. B17. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
176. Refer to Fi+,re 8$0. The price that sellers effecti)ely recei)e after the ta, is imposed is a. B22. -. B14. c. B12. d. B17.

ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
117. Refer to Fi+,re 8$0. The per#unit -urden of the ta, on -uyers is a. B12. -. B17. c. B". d. B4. ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
111. Refer to Fi+,re 8$0. The per#unit -urden of the ta, on sellers is a. B12. -. B17. c. B". d. B4. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
112. Refer to Fi+,re 8$0. The amount of the ta, on each unit of the +ood is a. B12. -. B17. c. B". d. B4. ANS: A NAT: Analytic (S&: Applicati)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
11.. Refer to Fi+,re 8$0. The amount of ta, re)enue recei)ed -y the +o)ernment is equal to a. B217. -. B227. c. B6"7. d. B10477. ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
112. Refer to Fi+,re 8$0. The amount of deadwei+ht loss as a result of the ta, is a. B217. -. B227. c. B6"7. d. B10477. ANS: A NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
113. Refer to Fi+,re 8$0. The ta, results in a loss of consumer surplus that amounts to a. B127. -. B227. c. B347. d. B4"7. ANS: D NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': &onsumer surplus
&hapter " 8Application: the &osts of Ta,ation 25 114. Refer to Fi+,re 8$0. The ta, results in a loss of producer surplus that amounts to a. B67. -. B1"7. c. B227. d. B317. ANS: D NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': 'roducer surplus
Figure 8-5 Suppose that the +o)ernment imposes a ta, of '. # '1.
'2
Price
Supply A
'.
;
'2
& K
D
'1
F F
E2
I Demand
E1 Quantity
115. Refer to Fi+,re 8$1. The equili-rium price -efore the ta, is imposed is a. '1. -. '2. c. '.. d. '2. ANS: ; NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
11". Refer to Fi+,re 8$1. The price that -uyers effecti)ely pay after the ta, is imposed is a. '1. -. '2. c. '.. d. '2. ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
116. Refer to Fi+,re 8$1. The price that sellers effecti)ely recei)e after the ta, is imposed is a. '1. -. '2. c. '.. d. '2. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
127. Refer to Fi+,re 8$1. The ta, is le)ied on a. -uyers only. -. sellers only. c. -oth -uyers and sellers. d. This is impossi-le to determine from the fi+ure.

ANS: D NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
121. Refer to Fi+,re 8$1. &onsumer surplus -efore the ta, was le)ied is represented -y area a. A. -. A@;@&. c. D@K@F. d. F. ANS: ; NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
122. Refer to Fi+,re 8$1. 'roducer surplus -efore the ta, was le)ied is represented -y area a. A. -. A@;@&. c. D@K@F. d. F. ANS: & NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
12.. Refer to Fi+,re 8$1. After the ta, is le)ied0 consumer surplus is represented -y area a. A. -. A@;@&. c. D@K@F. d. F. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
122. Refer to Fi+,re 8$1. After the ta, is le)ied0 producer surplus is represented -y area a. A. -. A@;@&. c. D@K@F. d. F. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
123. Refer to Fi+,re 8$1. The ta, causes a reduction in consumer surplus that is represented -y area a. A. -. ;@&. c. &@K. d. F. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
124. Refer to Fi+,re 8$1. The ta, causes a reduction in producer surplus that is represented -y area a. A. -. &@K. c. D@K. d. F. ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
&hapter " 8Application: the &osts of Ta,ation 26 125. Refer to Fi+,re 8$1. The -enefit to the +o)ernment is measured -y a. ta, re)enue and is represented -y area A@;. -. ta, re)enue and is represented -y area ;@D. c. the net +ain in total surplus and is represented -y area ;@D. d. the net +ain in total surplus and is represented -y area &@K. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
12". Refer to Fi+,re 8$1. The total surplus with the ta, is represented -y area a. &@K. -. A@;@&. c. D@K@F. d. A@;@D@F. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
126. Refer to Fi+,re 8$1. The loss in total welfare that results from the ta, is represented -y area a. A@;@D@F. -. A@;@&. c. D@K@F. d. &@K. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Price 22 27 1" 14 12 12 17 " 4 2 2 ; A
Supply
Demand
177 277 .77 277 377 477 577 "77 677 1777 Quantity
1.7. Refer to Fi+,re 8$2. /ithout a ta,0 the equili-rium price and quantity are a. B14 and .77. -. B17 and 477. c. B17 and .77. d. B4 and .77. ANS: ; NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es

1.1. Refer to Fi+,re 8$2. /ithout a ta,0 consumer surplus in this mar*et is a. B10377. -. B20277. c. B.0777. d. B.0477. ANS: D NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
1.2. Refer to Fi+,re 8$2. /ithout a ta,0 producer surplus in this mar*et is a. B10377. -. B20277. c. B.0777. d. B.0477. ANS: ; NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
1... Refer to Fi+,re 8$2. /ithout a ta,0 total surplus in this mar*et is a. B.0777. -. B20"77. c. B40777. d. B50277. ANS: & NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
1.2. Refer to Fi+,re 8$2. /hen the ta, is imposed in this mar*et0 the price -uyers effecti)ely pay is a. B2. -. B4. c. B17. d. B14. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
1.3. Refer to Fi+,re 8$2. /hen the ta, is imposed in this mar*et0 -uyers effecti)ely pay what amount of the B17 ta,D a. B7 -. B2 c. B4 d. B17 ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
1.4. Refer to Fi+,re 8$2. /hen the ta, is imposed in this mar*et0 sellers effecti)ely pay what amount of the B17 ta,D a. B7 -. B2 c. B4 d. B17 ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
&hapter " 8Application: the &osts of Ta,ation 31 1.5. Refer to Fi+,re 8$2. /hen the ta, is imposed in this mar*et0 the price sellers effecti)ely recei)e is a. B2. -. B4. c. B17. d. B14. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, -urden
1.". Refer to Fi+,re 8$2. /hen the ta, is imposed in this mar*et0 consumer surplus is a. B477. -. B677. c. B10377. d. B.0777. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
1.6. Refer to Fi+,re 8$2. /hen the ta, is imposed in this mar*et0 producer surplus is a. B237. -. B477. c. B677. d. B10377. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
127. Refer to Fi+,re 8$2. /hen the ta, is placed on this +ood0 the quantity sold a. is 4770 and -uyers effecti)ely pay B17. -. is .770 and -uyers effecti)ely pay B17. c. is 4770 and -uyers effecti)ely pay B14. d. is .770 and -uyers effecti)ely pay B14. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
121. Refer to Fi+,re 8$2. /hen the +o)ernment imposes the ta, in this mar*et0 ta, re)enue is a. B477. -. B677. c. B10377. d. B.0777. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
122. Refer to Fi+,re 8$2. The amount of the ta, on each unit of the +ood is a. B4. -. B". c. B17. d. B12. ANS: & NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
12.. Refer to Fi+,re 8$2. Total surplus with the ta, in place is a. B10377. -. B.0477. c. B20377. d. B40777.

ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
122. Refer to Fi+,re 8$2. /hat happens to consumer surplus when the ta, is imposed in this mar*etD a. &onsumer surplus falls -y B.0477. -. &onsumer surplus falls -y B20577. c. &onsumer surplus falls -y B10"77. d. &onsumer surplus falls -y B677. ANS: ; NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': &onsumer surplus
123. Refer to Fi+,re 8$2. /hat happens to producer surplus when the ta, is imposed in this mar*etD a. 'roducer surplus falls -y B477. -. 'roducer surplus falls -y B677. c. 'roducer surplus falls -y B10"77. d. 'roducer surplus falls -y B20177. ANS: & NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': 'roducer surplus
124. Refer to Fi+,re 8$2. /hat happens to total surplus in this mar*et when the ta, is imposedD a. Total surplus increases -y B10377. -. Total surplus increases -y B.0777. c. Total surplus decreases -y B10377. d. Total surplus decreases -y B0.777. ANS: & NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': Total surplus
125. Refer to Fi+,re 8$2. The ta, results in a deadwei+ht loss that amounts to a. B477. -. B677. c. B10377. d. B10"77. ANS: & NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
&hapter " 8Application: the &osts of Ta,ation 3. Figure 8-7 The )ertical distance -etween points A and ; represents a ta, in the mar*et.
22 22 27 1" 14 12 12 17 " 4 2 2 3 17 13 27 23 .7 .3 27 23 37 ; A Price
Supply
Demand
33 47 Quantity
12". Refer to Fi+,re 8$3. ;efore the ta, is imposed0 the equili-rium price is a. B140 and the equili-rium quantity is 13. -. B120 and the equili-rium quantity is 13. c. B120 and the equili-rium quantity is 23. d. B"0 and the equili-rium quantity is 13. ANS: & NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': Ta,es
126. Refer to Fi+,re 8$3. As a result of the ta,0 -uyers effecti)ely pay a. B14 for each unit of the +ood0 and sellers effecti)ely recei)e B12 for each unit of the +ood. -. B14 for each unit of the +ood0 and sellers effecti)ely recei)e B" for each unit of the +ood. c. B12 for each unit of the +ood0 and sellers effecti)ely recei)e B" for each unit of the +ood. d. B12 for each unit of the +ood0 and sellers effecti)ely recei)e B17 for each unit of the +ood. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta,es
137. Refer to Fi+,re 8$3. Suppose a 27th unit of the +ood were sold -y a seller to a -uyer. /hich of the followin+ statements is correctD a. For the 27th unit0 the difference -etween the -uyer:s )alue and the seller:s cost is less than the ta, per unit. -. For the 27th unit0 the difference -etween the -uyer:s )alue and the seller:s cost is +reater than the ta, per unit. c. For the 27th unit0 the difference -etween the -uyer:s )alue and the seller:s cost is equal to the ta, per unit. d. It ma*es sense for the -uyer to -uy and for the seller to sell the 27th unit0 with or without the ta, in place. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss

131. Refer to Fi+,re 8$3. /hich of the followin+ statements summari9es the incidence of the ta,D a. For each unit of the +ood that is sold0 -uyers -ear one#half of the ta, -urden0 and sellers -ear one# half of the ta, -urden. -. For each unit of the +ood that is sold0 -uyers -ear one#third of the ta, -urden0 and sellers -ear two# thirds of the ta, -urden. c. For each unit of the +ood that is sold0 -uyers -ear one#fourth of the ta, -urden0 and sellers -ear three#fourths of the ta, -urden. d. For each unit of the +ood that is sold0 -uyers -ear three#fourths of the ta, -urden0 and sellers -ear one#fourth of the ta, -urden. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, incidence
132. Refer to Fi+,re 8$3. /hich of the followin+ statements is correctD a. Total surplus -efore the ta, is imposed is B237. -. After the ta, is imposed0 consumer surplus is 23 percent of its pre#ta, )alue. c. After the ta, is imposed0 producer surplus is 23 percent of its pre#ta, )alue. d. All of the a-o)e are correct. ANS: A DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Total surplus
(S&: Applicati)e
13.. Refer to Fi+,re 8$3. /hich of the followin+ statements is correctD a. Total surplus -efore the ta, is imposed is B23. -. After the ta, is imposed0 consumer surplus is 23 percent of its pre#ta, )alue. c. After the ta, is imposed0 producer surplus is .4 percent of its pre#ta, )alue. d. All of the a-o)e are correct. ANS: & DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Total surplus 132. Refer to Fi+,re 8$3. As a result of the ta,0 a. consumer surplus decreases from B137 to B47. -. producer surplus decreases from B123 to B23. c. the mar*et e,periences a deadwei+ht loss of B23. d. All of the a-o)e are correct. ANS: ; DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Applicati)e
(S&: Applicati)e
133. Refer to Fi+,re 8$3. As a result of the ta,0 consumer surplus decreases -y a. B430 producer surplus decreases -y B"30 ta, re)enue is B1270 and deadwei+ht loss is B.7. -. B530 producer surplus decreases -y B530 ta, re)enue is B1270 and deadwei+ht loss is B.7. c. B"70 producer surplus decreases -y B"70 ta, re)enue is B1270 and deadwei+ht loss is B27. d. B1270 producer surplus decreases -y B1270 ta, re)enue is B2770 and deadwei+ht loss is B27. ANS: & DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Applicati)e
134. Refer to Fi+,re 8$3. /hich of the followin+ statements is correctD a. The loss of producer surplus that is associated with some sellers droppin+ out of the mar*et as a result of the ta, is B.7. -. The loss of consumer surplus for those -uyers of the +ood who continue to -uy it after the ta, is imposed is B47. c. The loss of consumer surplus caused -y this ta, e,ceeds the loss of producer surplus caused -y this ta,. d. This ta, produces B277 in ta, re)enue for the +o)ernment.
&hapter " 8Application: the &osts of Ta,ation 33 ANS: ; DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Applicati)e
135. Refer to Fi+,re 8$3. The deadwei+ht loss associated with this ta, amounts to a. B470 and this fi+ure represents the amount -y which ta, re)enue to the +o)ernment e,ceeds the com-ined loss of producer and consumer surpluses. -. B470 and this fi+ure represents the surplus that is lost -ecause the ta, discoura+es mutually ad)anta+eous trades -etween -uyers and sellers. c. B270 and this fi+ure represents the amount -y which ta, re)enue to the +o)ernment e,ceeds the com-ined loss of producer and consumer surpluses. d. B270 and this fi+ure represents the surplus that is lost -ecause the ta, discoura+es mutually ad)anta+eous trades -etween -uyers and sellers. ANS: D NAT: Analytic (S&: Analytical DIF: . !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Figure 8-8 Suppose the +o)ernment imposes a B17 per unit ta, on a +ood.
13". Refer to Fi+,re 8$8- The ta, causes consumer surplus to decrease -y the area a. A. -. ;@&. c. A@;@&. d. A@;@&@D@F. ANS: ; NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
136. Refer to Fi+,re 8$8- After the ta, +oes into effect0 consumer surplus is the area a. A. -. ;@&. c. A@;@&. d. A@;@D@C@N. ANS: A NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': &onsumer surplus

147. Refer to Fi+,re 8$8- The ta, causes producer surplus to decrease -y the area a. D@F. -. D@F@F. c. D@F@C. d. D@F@F@K. ANS: A NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
141. Refer to Fi+,re 8$8- After the ta, +oes into effect0 producer surplus is the area a. D@F@F@K@C. -. D@F@F@K. c. D@F@C. d. C. ANS: D NAT: Analytic (S&: Interpreti)e DIF: 2 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
142. Refer to Fi+,re 8$8- The +o)ernment collects ta, re)enue that is the area a. $. -. ;@D. c. &@F. d. F@F@$. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Ta, re)enue
14.. Refer to Fi+,re 8$8- The decrease in consumer and producer surpluses that is not offset -y ta, re)enue is the area a. &. -. F. c. F. d. &@F. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
142. Refer to Fi+,re 8$8- The deadwei+ht loss of the ta, is the area a. ;@D. -. &@F. c. A@&@F@C. d. ;@&@D@F. ANS: ; NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
143. Refer to Fi+,re 8$8- %ne effect of the ta, is to a. reduce consumer surplus from B47 to B22. -. reduce producer surplus from B.2 to B". c. create a deadwei+ht loss of B22. d. All of the a-o)e are correct. ANS: ; DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Applicati)e
&hapter " 8Application: the &osts of Ta,ation 35 144. Refer to Fi+,re 8$8- %ne effect of the ta, is to a. reduce consumer surplus -y B.4. -. reduce producer surplus -y B22. c. create a deadwei+ht loss of B27. d. All of the a-o)e are correct. ANS: D DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Applicati)e
Scenario 8-1 &laudia would -e willin+ to pay as much as B177 per wee* to ha)e her house cleaned. Cohn>s opportunity cost of cleanin+ &laudia:s house is B57 per wee*. 145. Refer to Scenario 8$'. If &laudia pays Cohn B"7 to clean her house0 &laudia:s consumer surplus is a. B"7. -. B.7. c. B27. d. B17. ANS: & NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
14". Refer to Scenario 8$'. If Cohn cleans &laudia>s house for B"70 Cohn:s producer surplus is a. B"7. -. B.7. c. B27. d. B17. ANS: D NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
146. Refer to Scenario 8$'. Assume &laudia is required to pay a ta, of B27 when she hires someone to clean her house for a wee*. /hich of the followin+ is correctD a. &laudia will now clean her own house. -. Cohn will continue to clean &laudia:s house0 -ut his producer surplus will decline. c. Total economic welfare ?consumer surplus plus producer surplus plus ta, re)enueA will increase. d. &laudia will continue to hire Cohn to clean her house0 -ut her consumer surplus will decline. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
157. Refer to Scenario 8$'. Assume &laudia is required to pay a ta, of B13 when she hires someone to clean her house. /hich of the followin+ is trueD a. &laudia will continue to hire Cohn to clean her house0 -ut her consumer surplus will decline. -. Cohn will continue to clean &laudia>s house0 -ut his producer surplus will decline. c. Total economic welfare ?consumer surplus plus producer surplus plus ta, re)enueA will decrease. d. All of the a-o)e are correct. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
Scenario 8-2 Tom mows Stephanie>s lawn for B23. Tom:s opportunity cost of mowin+ Stephanie:s lawn is B270 and Stephanie>s willin+ness to pay Tom to mow her lawn is B2". 151. Refer to Scenario 8$.. If Stephanie hires Tom to mow her lawn0 Stephanie:s consumer surplus is a. B.. -. B3. c. B". d. B23.

ANS: A NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': &onsumer surplus
152. Refer to Scenario 8$.. If Stephanie hires Tom to mow her lawn0 Tom:s producer surplus is a. B2. -. B.. c. B3. d. B23. ANS: & NAT: Analytic (S&: Interpreti)e DIF: 1 !F: $%&: Supply and demand "#1 T%': 'roducer surplus
15.. Refer to Scenario 8$.. Assume that Tom is required to pay a ta, of B. each time he mows a lawn. /hich of the followin+ results is most li*elyD a. Stephanie now will decide to mow her own lawn0 and Tom will decide it is no lon+er in his interest to mow Stephanie:s lawn. -. Stephanie is willin+ to pay Tom to mow her lawn0 -ut Tom will decline her offer. c. Tom is willin+ to mow Stephanie:s lawn0 -ut Stephanie will decide to mow her own lawn. d. Tom and Stephanie still can en+a+e in a mutually#a+reea-le trade. ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
152. Refer to Scenario 8$.. Assume Tom is required to pay a ta, of B17 each time he mows a lawn. /hich of the followin+ results is most li*elyD a. Stephanie now will decide to mow her own lawn0 and Tom will decide it is no lon+er in his interest to mow Stephanie:s lawn. -. Stephanie still is willin+ to pay Tom to mow her lawn0 -ut Tom will decline her offer. c. Tom still is willin+ to mow Stephanie:s lawn0 -ut Stephanie will decide to mow her own lawn. d. Tom and Stephanie still can en+a+e in a mutually#a+reea-le trade. ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Deadwei+ht loss
153. Suppose a ta, of B3 per unit is imposed on a +ood0 and the ta, causes the equili-rium quantity of the +ood to decrease from 277 units to 177 units. The ta, decreases consumer surplus -y B"77 and decreases producer surplus -y B577. The deadwei+ht loss from the ta, is a. B377. -. B10777. c. B10377. d. B20777. ANS: ; DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Total surplus
(S&: Applicati)e
154. Suppose a ta, of B2 per unit is imposed on a +ood0 and the ta, causes the equili-rium quantity of the +ood to decrease from 20777 units to 10577 units. The ta, decreases consumer surplus -y B.0777 and decreases producer surplus -y B20277. The deadwei+ht loss of the ta, is a. B277. -. B277. c. B477. d. B10277. ANS: & DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Applicati)e
&hapter " 8Application: the &osts of Ta,ation 36 155. Suppose a ta, of B. per unit is imposed on a +ood. The supply cur)e is a typical upward#slopin+ strai+ht line0 and the demand cur)e is a typical downward#slopin+ strai+ht line. The ta, decreases consumer surplus -y B.0677 and decreases producer surplus -y B.0777. The ta, +enerates ta, re)enue of B40777. The ta, decreased the equili-rium quantity of the +ood from a. 20777 to 10377. -. 20277 to 20777. c. 20477 to 20777. d. .0777 to 20277. ANS: & DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Analytical
15". Suppose a ta, of B3 per unit is imposed on a +ood. The supply cur)e is a typical upward#slopin+ strai+ht line0 and the demand cur)e is a typical downward#slopin+ strai+ht line. The ta, decreases consumer surplus -y B170777 and decreases producer surplus -y B130777. The deadwei+ht loss of the ta, is B20377. The ta, decreased the equili-rium quantity of the +ood from a. 40377 to 30377. -. 30377 to 20377. c. 30777 to .0777. d. 40777 to 20777. ANS: ; DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Analytical
156. A ta, of B7.23 is imposed on each -a+ of potato chips that is sold. The ta, decreases producer surplus -y B477 per day0 +enerates ta, re)enue of B10227 per day0 and decreases the equili-rium quantity of potato chips -y 127 -a+s per day. The ta, a. decreases consumer surplus -y B423 per day. -. decreases the equili-rium quantity from 40777 -a+s per day to 30""7 -a+s per day. c. decreases total surplus from B.0777 to B10"77 per day. d. creates a deadwei+ht loss of B13 per day. ANS: D DIF: . !F: "#1 NAT: Analytic $%&: Supply and demand T%': &onsumer surplus 1 'roducer surplus 1 Deadwei+ht loss
(S&: Analytical
1"7. Da)id wal*s &arolyn:s do+ once a day for B37 per wee*. &arolyn )alues this ser)ice at B47 per wee*0 while the opportunity cost of Da)id:s time is B.7 per wee*. The +o)ernment places a ta, of B.3 per wee* on do+ wal*ers. ;efore the ta,0 what is the total surplusD a. B47 -. B37 c. B.7 d. B23 ANS: & NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
1"1. Da)id wal*s &arolyn:s do+ once a day for B37 per wee*. &arolyn )alues this ser)ice at B47 per wee*0 while the opportunity cost of Da)id:s time is B.7 per wee*. The +o)ernment places a ta, of B.3 per wee* on do+ wal*ers. After the ta,0 what is the loss in total surplusD a. B37 -. B.7 c. B23 d. B7 ANS: ; NAT: Analytic (S&: Applicati)e DIF: . !F: $%&: Supply and demand "#1 T%': Total surplus

1"2. Da)id wal*s &arolyn:s do+ once a day for B37 per wee*. &arolyn )alues this ser)ice at B47 per wee*0 while the opportunity cost of Da)id:s time is B.7 per wee*. The +o)ernment places a ta, of B.3 per wee* on do+ wal*ers. After the ta,0 what is the total surplusD a. B37 -. B.7 c. B23 d. B7 ANS: D NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
1".. Diana is a personal trainer whose client &harles pays B"7 per hour#lon+ session. &harles )alues this ser)ice at B177 per hour0 while the opportunity cost of Diana:s time is B53 per hour. The +o)ernment places a ta, of B17 per hour on personal trainers. ;efore the ta,0 what is the total surplusD a. B23 -. B27 c. B3 d. B7 ANS: A NAT: Analytic (S&: Applicati)e DIF: 2 !F: $%&: Supply and demand "#1 T%': Total surplus
1"2. Diana is a personal trainer whose client &harles pays B"7 per hour#lon+ session. &harles )alues this ser)ice at B177 per hour0 while the opportunity cost of Diana:s time is B53 per hour. The +o)ernment places a ta, of B17 per hour on personal trainers. After the ta,0 what is li*ely to happen in the mar*et for personal trainin+D a. Diana and &harles will a+ree to a new price somewhere -etween B"3 and B177. -. Diana and &harles will a+ree to a new price somewhere -etween B57 and B117. c. Diana will no lon+er offer personal trainin+ ser)ices to &harles -ecause she must char+e more than B177 in order to co)er her opportunity costs and pay the ta,. d. The price will remain at B"70 and Diana will pay the B17 ta,. ANS: A NAT: Analytic (S&: Interpreti)e DIF: . !F: $%&: Supply and demand "#1 T%': Total surplus
Sec#. $ Application: The Costs of Taxation $ The (eter4inant of the (ea)*ei+ht Loss
%ULT &LE CHO CE 1. The price elasticities of supply and demand affect a. -oth the si9e of the deadwei+ht loss from a ta, and the ta, incidence. -. the si9e of the deadwei+ht loss from a ta, -ut not the ta, incidence. c. the ta, incidence -ut not the si9e of the deadwei+ht loss from a ta,. d. neither the si9e of the deadwei+ht loss from a ta, nor the ta, incidence. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
ANS: A $%&: !lasticity 2.
The si9e of the deadwei+ht loss +enerated from a ta, is affected -y the a. elasticities of -oth supply and demand. -. elasticity of demand only. c. elasticity of supply only. d. total re)enue collected -y the +o)ernment. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
ANS: A $%&: !lasticity ..
The si9e of a ta, and the deadwei+ht loss that results from the ta, are a. positi)ely related. -. ne+ati)ely related. c. independent of each other. d. equal to each other.
&hapter " 8Application: the &osts of Ta,ation 41 ANS: A $%&: !lasticity 2. DIF: T%': 2 !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Interpreti)e
;uyers of a product will -ear the lar+er part of the ta, -urden0 and sellers will -ear a smaller part of the ta, -urden0 when the a. ta, is placed on the sellers of the product. -. ta, is placed on the -uyers 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. DIF: T%': 2 !F: "#2 Ta, incidence 1 !lasticity NAT: Analytic (S&: Applicati)e
ANS: & $%&: !lasticity 3.
Sellers of a product will -ear the lar+er part of the ta, -urden0 and -uyers will -ear a smaller part of the ta, -urden0 when the a. ta, is placed on the sellers of the product. -. ta, is placed on the -uyers 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. DIF: T%': 2 !F: "#2 Ta, incidence 1 !lasticity NAT: Analytic (S&: Applicati)e
ANS: D $%&: !lasticity 4.
/hen a ta, is imposed on a +ood for which the supply is relati)ely elastic and the demand is relati)ely inelastic0 a. -uyers of the +ood will -ear most of the -urden of the ta,. -. sellers of the +ood will -ear most of the -urden of the ta,. c. -uyers and sellers will each -ear 37 percent of the -urden of the ta,. d. -oth equili-rium price and quantity will increase. DIF: T%': 2 !F: "#2 Ta, incidence 1 !lasticity NAT: Analytic (S&: Applicati)e
/hen a ta, is imposed on a +ood for which -oth demand and supply are )ery elastic0 a. sellers effecti)ely pay the maLority of the ta,. -. -uyers effecti)ely pay the maLority of the ta,. c. the ta, -urden is equally di)ided -etween -uyers and sellers. d. None of the a-o)e is correct= further information would -e required to determine how the -urden of the ta, is distri-uted -etween -uyers and sellers. DIF: T%': 2 !F: "#2 Ta, incidence 1 !lasticity NAT: Analytic (S&: Interpreti)e
ANS: D $%&: !lasticity ".
/hich of the followin+ statements is correct re+ardin+ the imposition of a ta, on +asolineD a. The incidence of the ta, depends upon whether the -uyers or the sellers are required to remit ta, payments to the +o)ernment. -. The incidence of the ta, depends upon the price elasticities of demand and supply. c. The amount of ta, re)enue raised -y the ta, depends upon whether the -uyers or the sellers are required to remit ta, payments to the +o)ernment. d. The amount of ta, re)enue raised -y the ta, does not depend upon the amount of the ta, per unit. DIF: T%': . !F: "#2 Ta, incidence 1 !lasticity NAT: Analytic (S&: Analytical
ANS: ; $%&: !lasticity 6.
/hen a +ood is ta,ed0 the -urden of the ta, a. falls more hea)ily on the side of the mar*et that is more elastic. -. falls more hea)ily on the side of the mar*et that is more inelastic. c. falls more hea)ily on the side of the mar*et that is closer to unit elastic. d. is distri-uted independently of relati)e elasticities of supply and demand. DIF: T%': 2 !F: "#2 Ta, incidence 1 !lasticity NAT: Analytic (S&: Applicati)e
ANS: ; $%&: !lasticity

17. The deadwei+ht loss from a B1 ta, will -e smallest in a mar*et with a. inelastic supply and elastic demand. -. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. elastic supply and inelastic demand. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
The deadwei+ht loss from a B2 ta, will -e smallest in a mar*et with a. elastic demand and elastic supply. -. elastic demand and inelastic supply. c. inelastic demand and elastic supply. d. inelastic demand and inelastic supply. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
The deadwei+ht loss from a B. ta, will -e lar+est in a mar*et with a. inelastic supply and elastic demand. -. inelastic supply and inelastic demand. c. elastic supply and elastic demand. d. elastic supply and inelastic demand. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
ANS: & $%&: !lasticity 1..
Suppose a ta, of B1 per unit is imposed on a +ood. The more elastic the supply of the +ood0 other thin+s equal0 the a. smaller is the response of quantity supplied to the ta,. -. lar+er is the ta, -urden on sellers relati)e to the ta, -urden on -uyers. c. lar+er is the deadwei+ht loss of the ta,. d. All of the a-o)e are correct. DIF: T%': . !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
Suppose a ta, of B1 per unit is imposed on a +ood. The more elastic the demand for the +ood0 other thin+s equal0 a. the lar+er is the decrease in quantity demanded as a result of the ta,. -. the smaller is the ta, -urden on -uyers relati)e to the ta, -urden on sellers. c. the lar+er is the deadwei+ht loss of the ta,. d. All of the a-o)e are correct. DIF: T%': . !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Analytical
ANS: D $%&: !lasticity Table 8-1 %ar5et A ; & D 13.
Characteristic Demand is )ery inelastic. Demand is )ery elastic. Supply is )ery inelastic. Supply is )ery elastic.
Refer to Ta6le 8$'- Suppose the +o)ernment is considerin+ le)yin+ a ta, in one or more of the mar*ets descri-ed in the ta-le. /hich of the mar*ets will allow the +o)ernment to minimi9e the deadwei+ht loss?esA from the ta,D a. mar*et A only -. mar*ets A and & only c. mar*ets ; and D only d. mar*et & only DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
&hapter " 8Application: the &osts of Ta,ation 4. 14. Refer to Ta6le 8$'- Suppose the +o)ernment is considerin+ le)yin+ a ta, in one or more of the mar*ets descri-ed in the ta-le. /hich of the mar*ets will ma,imi9e the deadwei+ht loss?esA from the ta,D a. mar*et ; only -. mar*ets A and & only c. mar*ets ; and D only d. mar*et D only DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
ANS: & $%&: !lasticity Figure 8-9

Price
Supply 1
Supply 2
Demand 1
Demand 2
Quantity
15.
Refer to Fi+,re 8$7- /hich of the followin+ com-inations will minimi9e the deadwei+ht loss from a ta,D a. supply 1 and demand 1 -. supply 2 and demand 2 c. supply 1 and demand 2 d. supply 2 and demand 1 DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
ANS: A $%&: !lasticity 1".
Refer to Fi+,re 8$7- /hich of the followin+ com-inations will ma,imi9e the deadwei+ht loss from a ta,D a. supply 1 and demand 1 -. supply 2 and demand 2 c. supply 1 and demand 2 d. supply 2 and demand 1 DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
Refer to Fi+,re 8$7- /hich of the followin+ statements is correctD a. Supply 1 is more elastic than supply 2. -. Demand 2 is more elastic than demand 1. c. Demand 1 is more elastic than supply 1. d. All of the a-o)e are correct. DIF: T%': 2 !lasticity !F: "#2 (S&: Applicati)e NAT: Analytic
Refer to Fi+,re 8$7- /hich of the followin+ statements is not correctD a. Supply 2 is more elastic than supply 1. -. 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. DIF: T%': 2 !lasticity !F: "#2 (S&: Applicati)e NAT: Analytic
ANS: D $%&: !lasticity

21. Suppose that the +o)ernment imposes a ta, on dairy products. The deadwei+ht loss from this ta, will li*ely -e +reater in the a. first year after it is imposed than in the fifth year after it is imposed -ecause demand and supply will -e more elastic in the first year than in the fifth year. -. first year after it is imposed than in the fifth year after it is imposed -ecause demand and supply will -e less elastic in the first year than in the fifth year. c. fifth year after it is imposed than in the first year after it is imposed -ecause demand and supply will -e more elastic in the first year than in the fifth year. d. fifth year after it is imposed than in the first year after it is imposed -ecause demand and supply will -e less elastic in the first year than in the fifth year. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
The demand for mil* is more elastic than the demand for water. Suppose the +o)ernment le)ies an equi)alent ta, on mil* and water. The deadwei+ht loss would -e lar+er in the mar*et for a. mil* than water -ecause the quantity of mil* would fall -y more than the quantity of water. -. mil* than water -ecause the quantity of water would fall -y more than the quantity of mil*. c. water than mil* -ecause the quantity of mil* would fall -y more than the quantity of water. d. water than mil* -ecause the quantity of water would fall -y more than the quantity of mil*. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
ANS: A $%&: !lasticity 2..
The deadwei+ht loss from a ta, a. does not )ary in amount when the price elasticity of demand chan+es. -. does not )ary in amount when the amount of the ta, per unit chan+es. c. is lar+er0 the lar+er is the amount of the ta, per unit. d. is smaller0 the lar+er is the amount of the ta, per unit. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
/hich of the followin+ statements is correct re+ardin+ a ta, on a +ood and the resultin+ deadwei+ht lossD a. The +reater are the price elasticities of supply and demand0 the +reater is the deadwei+ht loss. -. The +reater is the price elasticity of supply and the smaller is the price elasticity of demand0 the +reater is the deadwei+ht loss. c. The smaller are the decreases in quantity demanded and quantity supplied0 the +reater the deadwei+ht loss. d. The smaller is the wed+e -etween the effecti)e price to sellers and the effecti)e price to -uyers0 the +reater is the deadwei+ht loss. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Applicati)e
The amount of deadwei+ht loss that results from a ta, of a +i)en si9e is determined -y a. whether the ta, is le)ied on -uyers or sellers. -. the num-er of -uyers in the mar*et relati)e to the num-er of sellers. c. the price elasticities of demand and supply. d. the ratio of the ta, per unit to the effecti)e price recei)ed -y sellers. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
The amount of deadwei+ht loss from a ta, depends upon the a. price elasticity of demand. -. price elasticity of supply. c. amount of the ta, per unit. d. All of the a-o)e are correct. DIF: T%': 2 !F: "#2 !lasticity 1 Ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
&hapter " 8Application: the &osts of Ta,ation 43 25. Assume the supply cur)e for ci+ars is a typical0 upward#slopin+ strai+ht line0 and the demand cur)e for ci+ars is a typical0 downward#slopin+ strai+ht line. Suppose the equili-rium quantity in the mar*et for ci+ars is 10777 per month when there is no ta,. Then a ta, of B7.37 per ci+ar is imposed. The effecti)e price paid -y -uyers increases from B1.37 to B1.67 and the effecti)e price recei)ed -y sellers falls from B1.37 to B1.27. The +o)ernment:s ta, re)enue amounts to B253 per month. /hich of the followin+ statements is correctD a. After the ta, is imposed0 the equili-rium quantity of ci+ars is 677 per month. -. The demand for ci+ars is more elastic than the supply of ci+ars. c. The deadwei+ht loss of the ta, is B12.37. d. The ta, causes a decrease in consumer surplus of B."7. DIF: T%': . !F: "#2 Deadwei+ht loss 1 !lasticity NAT: Analytic (S&: Analytical
ANS: & $%&: !lasticity 2".
Assume the supply cur)e for ci+ars is a typical0 upward#slopin+ strai+ht line0 and the demand cur)e for ci+ars is a typical0 downward#slopin+ strai+ht line. Suppose the equili-rium quantity in the mar*et for ci+ars is 10777 per month when there is no ta,. Then a ta, of B7.37 per ci+ar is imposed. The effecti)e price paid -y -uyers increases from B1.37 to B1.67 and the effecti)e price recei)ed -y sellers falls from B1.37 to B1.27. The +o)ernment:s ta, re)enue amounts to B253 per month. /hich of the followin+ statements is correctD a. The demand for ci+ars is less elastic than the supply of ci+ars. -. The ta, causes a decrease in consumer surplus of B.67 and a decrease in producer surplus of B65.37. c. The deadwei+ht loss of the ta, is B12.37. d. All of the a-o)e are correct. DIF: T%': . !F: "#2 Deadwei+ht loss 1 !lasticity NAT: Analytic (S&: Analytical
Suppose that policyma*ers are considerin+ placin+ a ta, on either of two mar*ets. In (ar*et A0 the ta, will ha)e a si+nificant effect on the price consumers pay0 -ut it will not affect equili-rium quantity )ery much. In (ar*et ;0 the same ta, will ha)e only a small effect on the price consumers pay0 -ut it will ha)e a lar+e effect on the equili-rium quantity. %ther factors are held constant. In which mar*et will the ta, ha)e a lar+er deadwei+ht lossD a. (ar*et A -. (ar*et ; c. The deadwei+ht loss will -e the same in -oth mar*ets. d. There is not enou+h information to answer the question. DIF: T%': 2 !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Applicati)e
ANS: ; $%&: !lasticity .7.
&onsider a +ood to which a per#unit ta, applies. The +reater the price elasticities of demand and supply for the +ood0 the a. smaller the deadwei+ht loss from the ta,. -. +reater the deadwei+ht loss from the ta,. c. more efficient is the ta,. d. more equita-le is the distri-ution of the ta, -urden -etween -uyers and sellers. DIF: T%': 2 !F: "#2 Deadwei+ht loss 1 !lasticity NAT: Analytic (S&: Interpreti)e
&onsider a +ood to which a per#unit ta, applies. The si9e of the deadwei+ht that results from the ta, is smaller0 the a. lar+er is the price elasticity of demand. -. smaller is the price elasticity of supply. c. lar+er is the amount of the ta,. d. All of the a-o)e are correct. DIF: T%': 2 !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Interpreti)e

.2. &onsider a +ood to which a per#unit ta, applies. The si9e of the deadwei+ht that results from the ta, is smaller0 the a. less elastic is the demand for the +ood. -. less elastic is the supply of the +ood. c. smaller is the amount of the ta,. d. All of the a-o)e are correct. DIF: T%': 2 !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Interpreti)e
ANS: D $%&: !lasticity ...
Assume the price of +asoline is B2.77 per +allon0 and the equili-rium quantity of +asoline is 17 million +allons per day with no ta, on +asoline. Startin+ from this initial situation0 which of the followin+ scenarios would result in the lar+est deadwei+ht lossD a. The price elasticity of demand for +asoline is 7.1= the price elasticity of supply for +asoline is 7.4= and the +asoline ta, amounts to B7.27 per +allon. -. The price elasticity of demand for +asoline is 7.1= the price elasticity of supply for +asoline is 7.2= and the +asoline ta, amounts to B7.27 per +allon. c. The price elasticity of demand for +asoline is 7.2= the price elasticity of supply for +asoline is 7.4= and the +asoline ta, amounts to B7..7 per +allon. d. There is insufficient information to ma*e this determination. DIF: T%': . !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Applicati)e
ANS: & $%&: !lasticity .2.
Assume the price of +asoline is B2.27 per +allon0 and the equili-rium quantity of +asoline is 12 million +allons per day with no ta, on +asoline. Startin+ from this initial situation0 which of the followin+ scenarios would result in the lar+est deadwei+ht lossD a. A 17 percent increase in the price of +asoline reduces the quantity of +asoline demanded -y 2 percent and it increases the quantity of +asoline supplied -y 3 percent= and the ta, on +asoline amounts to B7.27 per +allon. -. A 17 percent increase in the price of +asoline reduces the quantity of +asoline demanded -y 2 percent and it increases the quantity of +asoline supplied -y 5 percent= and the ta, on +asoline amounts to B7.27 per +allon. c. A 17 percent increase in the price of +asoline reduces the quantity of +asoline demanded -y 1 percent and it increases the quantity of +asoline supplied -y " percent= and the ta, on +asoline amounts to B7..3 per +allon. d. There is insufficient information to ma*e this determination. DIF: T%': . !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Applicati)e
ANS: D $%&: !lasticity .3.
%ther thin+s equal0 the deadwei+ht loss of a ta, a. decreases as the si9e of the ta, increases. -. increases as the si9e of the ta, increases0 -ut the increase in the deadwei+ht loss is less rapid than the increase in the si9e of the ta,. c. increases as the si9e of the ta, increases0 and the increase in the deadwei+ht loss is more rapid than the increase in the si9e of the ta,. d. increases as the price elasticities of demand and8or supply increase0 -ut the deadwei+ht loss does not chan+e as the si9e of the ta, increases. DIF: T%': . !F: Deadwei+ht loss "#2 NAT: Analytic (S&: Applicati)e
!conomists +enerally a+ree that the most important ta, in the <.S. economy is the a. income ta,. -. ta, on la-or. c. inheritance or death ta,. d. ta, on corporate profits. DIF: T%': 1 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
&hapter " 8Application: the &osts of Ta,ation 45 .5. !conomists +enerally a+ree that the most important ta, in the <.S. economy is the a. in)estment ta,. -. sales ta,. c. property ta,. d. la-or ta,. DIF: T%': 1 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
ANS: D $%&: !lasticity .".
/hich of the followin+ is a ta, on la-orD a. (edicare ta, -. Social Security ta, c. federal income ta, d. All of the a-o)e are la-or ta,es. DIF: T%': 1 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
/hich of the followin+ is a ta, on la-orD a. (edicare ta, -. inheritance ta, c. sales ta, d. All of the a-o)e are la-or ta,es. DIF: T%': 1 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
$a-or ta,es may distort la-or mar*ets +reatly if a. la-or supply is hi+hly inelastic. -. many wor*ers choose to wor* 27 hours per wee* re+ardless of their earnin+s. c. the num-er of hours many part#time wor*ers want to wor* is )ery sensiti)e to the wa+e rate. d. Iunder+roundJ wor*ers do not respond to chan+es in the wa+es of le+al Lo-s -ecause they prefer not to pay ta,es. DIF: T%': 2 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
!conomists disa+ree on whether la-or ta,es cause small or lar+e deadwei+ht losses. This disa+reement arises primarily -ecause economists hold different )iews a-out a. the si9e of la-or ta,es. -. the importance of la-or ta,es imposed -y the federal +o)ernment relati)e to the importance of la-or ta,es imposed -y the )arious states. c. the elasticity of la-or supply. d. the elasticity of la-or demand. DIF: T%': 2 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
Ta,es on la-or ha)e the effect of encoura+in+ a. wor*ers to wor* more hours. -. the elderly to postpone retirement. c. second earners within a family to ta*e a Lo-. d. unscrupulous people to ta*e part in the under+round economy. DIF: T%': 2 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
ANS: D $%&: !lasticity 2..
&oncernin+ the la-or mar*et and ta,es on la-or0 economists disa+ree a-out a. the si9e of the ta, on la-or. -. the si9e of the deadwei+ht loss of the ta, on la-or. c. whether or not a ta, on la-or places a wed+e -etween the wa+e that firms pay and the wa+e that wor*ers recei)e. d. All of the a-o)e are correct. DIF: T%': 2 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic

22. The Social Security ta, is a ta, on a. capital. -. la-or. c. consumption e,penditures. d. earnin+s durin+ retirement. DIF: T%': 1 !F: "#2 $a-or 1 Social Security (S&: NAT: Analytic Interpreti)e
If the la-or supply cur)e is nearly )ertical0 a ta, on la-or a. has a lar+e deadwei+ht loss. -. raises a small amount of ta, re)enue. c. has little impact on the amount of wor* that wor*ers are willin+ to do. d. results in a lar+e ta, -urden on the firms that hire la-or. DIF: T%': 2 $a-or !F: "#2 (S&: Applicati)e NAT: Analytic
If the la-or supply cur)e is )ery elastic0 a ta, on la-or a. has a lar+e deadwei+ht loss. -. raises enou+h ta, re)enue to offset the loss in welfare. c. has a relati)ely small impact on the num-er of hours that wor*ers choose to wor*. d. results in a lar+e ta, -urden on the firms that hire la-or. DIF: T%': 2 $a-or !F: "#2 (S&: Applicati)e NAT: Analytic
The mar+inal ta, rate on la-or income for many wor*ers in the <nited States is almost a. .7 percent. -. 27 percent. c. 37 percent. d. 43 percent. DIF: T%': 1 $a-or !F: "#2 (S&: Definitional NAT: Analytic
ANS: ; $%&: !lasticity 2".
The more freedom youn+ mothers ha)e to wor* outside the home0 the a. more elastic the supply of la-or will -e. -. less elastic the supply of la-or will -e. c. more )ertical the la-or supply cur)e will -e. d. smaller is the decrease in employment that will result from a ta, on la-or. DIF: T%': 2 $a-or !F: "#2 (S&: Applicati)e NAT: Analytic
The more freedom people are +i)en to choose the date of their retirement0 the a. more elastic is the supply of la-or. -. less elastic is the supply of la-or. c. steeper is the la-or supply cur)e. d. smaller is the decrease in employment that will result from a ta, on la-or. DIF: T%': 2 $a-or !F: "#2 (S&: Applicati)e NAT: Analytic
Ta,es on la-or encoura+e all of the followin+ except a. older wor*ers to ta*e early retirement from the la-or force. -. mothers to stay at home rather than wor* in the la-or force. c. wor*ers to wor* o)ertime. d. people to -e paid Iunder the ta-le.J DIF: T%': 2 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
ANS: & $%&: !lasticity
&hapter " 8Application: the &osts of Ta,ation 46 31. Ta,es on la-or encoura+e which of the followin+D a. la-or demand to -e more inelastic -. mothers to stay at home rather than wor* in the la-or force c. wor*ers to wor* o)ertime d. fathers to ta*e on second Lo-s DIF: T%': 2 $a-or !F: "#2 (S&: Interpreti)e NAT: Analytic
As more people -ecome self#employed0 which allows them to determine how many hours they wor* per wee*0 we would e,pect the deadwei+ht loss from the Social Security ta, to a. increase0 and the re)enue +enerated from the ta, to increase. -. increase0 and the re)enue +enerated from the ta, to decrease. c. decrease0 and the re)enue +enerated from the ta, to increase. d. decrease0 and the re)enue +enerated from the ta, to decrease. DIF: T%': 2 !F: "#2 Social Security 1 Ta, re)enue NAT: Analytic (S&: Applicati)e
Sec#/ $ (ea)*ei+ht Loss an) Tax Re8en,e as Taxes 9ar:

%ULT &LE CHO CE 1. A decrease in the si9e of a ta, is most li*ely to increase ta, re)enue in a mar*et with a. elastic demand and elastic supply. -. elastic demand and inelastic supply. c. inelastic demand and elastic supply. d. inelastic demand and inelastic supply. DIF: T%': 2 !F: "#. !lasticity 1 Ta, re)enue (S&: NAT: Analytic Applicati)e
An increase in the si9e of a ta, is most li*ely to increase ta, re)enue in a mar*et with a. elastic demand and elastic supply. -. elastic demand and inelastic supply. c. inelastic demand and elastic supply. d. inelastic demand and inelastic supply. DIF: T%': 2 !F: "#. !lasticity 1 Ta, re)enue (S&: NAT: Analytic Applicati)e
ANS: D $%&: !lasticity ..
If the si9e of a ta, increases0 ta, re)enue a. increases. -. decreases. c. remains the same. d. may increase0 decrease0 or remain the same. 2 !F: T%': "#. Ta, re)enue NAT: Analytic (S&: Interpreti)e
ANS: D DIF: $%&: Supply and demand 2.
Suppose the ta, on liquor is increased so that the ta, +oes from -ein+ a PmediumP ta, to -ein+ a Plar+eP ta,. As a result0 it is li*ely that a. ta, re)enue increases0 and the deadwei+ht loss increases. -. ta, re)enue increases0 and the deadwei+ht loss decreases. c. ta, re)enue decreases0 and the deadwei+ht loss increases. d. ta, re)enue decreases0 and the deadwei+ht loss decreases. 2 !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: & DIF: $%&: Supply and demand (S&: Applicati)e

Figure 8-10 The )ertical distance -etween points A and ; represents the ori+inal ta,.
Price 12 11 17 6 " 5 4 3 2 . 2 1 7.3 1 1.3 2 2.3 . ..3 2 F ; D & F A
D
2.3 3 Quantity
3.
Refer to Fi+,re 8$'#- If the +o)ernment chan+ed the per#unit ta, from B3.77 to B2.370 then the price paid -y -uyers would -e B5.370 the price recei)ed -y sellers would -e B30 and the quantity sold in the mar*et would -e 1.3 units. &ompared to the ori+inal ta, rate0 this lower ta, rate would a. increase +o)ernment re)enue and increase the deadwei+ht loss from the ta,. -. increase +o)ernment re)enue and decrease the deadwei+ht loss from the ta,. c. decrease +o)ernment re)enue and increase the deadwei+ht loss from the ta,. d. decrease +o)ernment re)enue and decrease the deadwei+ht loss from the ta,. . !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: D DIF: $%&: Supply and demand (S&: Analytical 4.
Refer to Fi+,re 8$'#- If the +o)ernment chan+ed the per#unit ta, from B3.77 to B5.370 then the price paid -y -uyers would -e B17.370 the price recei)ed -y sellers would -e B.0 and the quantity sold in the mar*et would -e 7.3 units. &ompared to the ori+inal ta, rate0 this hi+her ta, rate would a. increase +o)ernment re)enue and increase the deadwei+ht loss from the ta,. -. increase +o)ernment re)enue and decrease the deadwei+ht loss from the ta,. c. decrease +o)ernment re)enue and increase the deadwei+ht loss from the ta,. d. decrease +o)ernment re)enue and decrease the deadwei+ht loss from the ta,. . !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: & DIF: $%&: Supply and demand (S&: Analytical 5.
Refer to Fi+,re 8$'#- The ori+inal ta, can -e represented -y the )ertical distance A;. Suppose the +o)ernment is decidin+ whether to lower the ta, to &D or raise it to FF. /hich of the followin+ statements is correctD a. &ompared to the ori+inal ta,0 the lar+er ta, will decrease -oth ta, re)enue and deadwei+ht loss. -. &ompared to the ori+inal ta,0 the smaller ta, will increase -oth ta, re)enue and deadwei+ht loss. c. &ompared to the ori+inal ta,0 the lar+er ta, will decrease ta, re)enue and increase deadwei+ht loss. d. ;oth a and - are correct. . !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: & DIF: $%&: Supply and demand (S&: Analytical
&hapter " 8Application: the &osts of Ta,ation 51 ". Refer to Fi+,re 8$'#- The ori+inal ta, can -e represented -y the )ertical distance A;. Suppose the +o)ernment is decidin+ whether to lower the ta, to &D or raise it to FF. /hich of the followin+ statements is not correctD a. &ompared to the ori+inal ta,0 the lar+er ta, will increase ta, re)enue. -. &ompared to the ori+inal ta,0 the smaller ta, will decrease deadwei+ht loss. c. &ompared to the ori+inal ta,0 the smaller ta, will decrease ta, re)enue. d. &ompared to the ori+inal ta,0 the lar+er ta, will increase deadwei+ht loss. . !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: A DIF: $%&: Supply and demand (S&: Analytical 6.
As the ta, on a +ood increases from B1 per unit to B2 per unit to B. per unit and so on0 the a. ta, re)enue increases at first0 -ut it e)entually pea*s and then decreases. -. deadwei+ht loss increases at first0 -ut it e)entually pea*s and then decreases. c. ta, re)enue always increases0 and the deadwei+ht loss always increases. d. ta, re)enue always decreases0 and the deadwei+ht loss always increases. 2 !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: A DIF: $%&: Supply and demand (S&: Applicati)e 17.
/hich of the followin+ ideas is the most plausi-leD a. Ta, re)enue is more li*ely to increase when a low ta, rate is increased than when a hi+h ta, rate is increased. -. Ta, re)enue is less li*ely to increase when a low ta, rate is increased than when a hi+h ta, rate is increased. c. Ta, re)enue is li*ely to increase -y the same amount when a low ta, rate is increased and when a hi+h ta, rate is increased. d. Decreasin+ a ta, rate can ne)er increase ta, re)enue. . !F: T%': "#. Ta, re)enue NAT: Analytic (S&: Applicati)e
ANS: A DIF: $%&: Supply and demand 11.
/hich of the followin+ statements is true for mar*ets in which the demand cur)e slopes downward and the supply cur)e slopes upwardD a. As the si9e of the ta, increases0 ta, re)enue continually rises and deadwei+ht loss continually falls. -. As the si9e of the ta, increases0 ta, re)enue and deadwei+ht loss rise initially0 -ut -oth e)entually -e+in to fall. c. As the si9e of the ta, increases0 ta, re)enue rises initially0 -ut it e)entually -e+ins to fall= deadwei+ht loss continually rises. d. As the si9e of the ta, increases0 ta, re)enue rises initially0 -ut it e)entually -e+ins to fall= deadwei+ht loss falls initially0 -ut e)entually it -e+ins to rise. 2 !F: T%': "#. NAT: Analytic Ta, re)enue 1 Deadwei+ht loss
ANS: & DIF: $%&: Supply and demand (S&: Applicati)e 12.
In which of the followin+ cases is it most li*ely that an increase in the si9e of a ta, will decrease ta, re)enueD a. The price elasticity of demand is small0 and the price elasticity of supply is lar+e. -. The price elasticity of demand is lar+e0 and the price elasticity of supply is small. c. The price elasticity of demand and the price elasticity of supply are -oth small. d. The price elasticity of demand and the price elasticity of supply are -oth lar+e. DIF: T%': . !F: "#. !lasticity 1 Ta, re)enue (S&: NAT: Analytic Analytical
ANS: D $%&: !lasticity 1..
/hich of the followin+ statements correctly descri-es the relationship -etween the si9e of the deadwei+ht loss and the amount of ta, re)enue as the si9e of a ta, increases from a small ta, to a medium ta, and finally to a lar+e ta,D a. ;oth the si9e of the deadwei+ht loss and ta, re)enue increase. -. The si9e of the deadwei+ht loss increases0 -ut the ta, re)enue decreases. c. The si9e of the deadwei+ht loss increases0 -ut the ta, re)enue first increases0 then decreases. d. ;oth the si9e of the deadwei+ht loss and ta, re)enue decrease.

ANS: & $%&: !lasticity 12. DIF: T%': 2 !F: "#. !lasticity 1 Ta, re)enue (S&: NAT: Analytic Applicati)e
Suppose the +o)ernment increases the si9e of a ta, -y 23 percent. The deadwei+ht loss from that ta, a. increases -y 23 percent. -. increases -y more than 23 percent. c. increases -ut -y less than 23 percent. d. decreases -y 23 percent. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: ; DIF: $%&: Supply and demand (S&: Applicati)e 13.
If the ta, on a +ood is dou-led0 the deadwei+ht loss of the ta, a. increases -y 37 percent. -. dou-les. c. triples. d. quadruples. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
If the ta, on a +ood is dou-led0 the deadwei+ht loss of the ta, a. remains constant. -. dou-les. c. quadruples. d. increases -y a percenta+e that cannot -e determined without further information. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
If the ta, on a +ood is increased from B7.17 per unit to B7.27 per unit0 the deadwei+ht loss from the ta, a. remains constant. -. increases -y a factor of 2. c. increases -y a factor of 6. d. increases -y a factor of 14. . !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: D DIF: $%&: Supply and demand (S&: Analytical 1".
If the ta, on a +ood is increased from B1 per unit to B. per unit0 the deadwei+ht loss from the ta, increases -y a factor of a. 2. -. .. c. 6. d. 1". . !F: T%': "#. NAT: Analytic Deadwei+ht loss
Suppose a ta, of B7.37 per unit on a +ood creates a deadwei+ht loss of B177. If the ta, is increased to B2.37 per unit0 the deadwei+ht loss from the new ta, would -e a. B277. -. B237. c. B377. d. B20377. . !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: D DIF: $%&: Supply and demand (S&: Analytical
&hapter " 8Application: the &osts of Ta,ation 5. 27. Suppose a ta, of B7.17 per unit on a +ood creates a deadwei+ht loss of B177. If the ta, is increased to B7..7 per unit0 the deadwei+ht loss from the new ta, would -e a. B277. -. B.77. c. B677. d. B60777. . !F: T%': "#. NAT: Analytic Deadwei+ht loss
In which of the followin+ instances would the deadwei+ht loss of the ta, on airline tic*ets increase -y a factor of 6D a. The ta, on airline tic*ets increases from B27 per tic*et to B47 per tic*et. -. The ta, on airline tic*ets increases from B27 per tic*et to B67 per tic*et. c. The ta, on airline tic*ets increases from B13 per tic*et to B47 per tic*et. d. The ta, on airline tic*ets increases from B13 per tic*et to B1.3 per tic*et. . !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: A DIF: $%&: Supply and demand (S&: Analytical 22.
In which of the followin+ instances would the deadwei+ht loss of the ta, on cartons of ci+arettes increase -y a factor of 6D a. The ta, on cartons of ci+arettes increases from B17 to B11.11. -. The ta, on cartons of ci+arettes increases from B17 to B27. c. The ta, on cartons of ci+arettes increases from B17 to B.7. d. The ta, on cartons of ci+arettes increases from B17 to B67. . !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: & DIF: $%&: Supply and demand (S&: Analytical 2..
/hich of the followin+ e)ents is consistent with an increase in the deadwei+ht loss of the +asoline ta, from B.7 million to B127 millionD a. The ta, on +asoline increases from B7..7 per +allon to B7.23 per +allon. -. The ta, on +asoline increases from B7..7 per +allon to B7.47 per +allon. c. The ta, on +asoline increases from B7.23 per +allon to B7.23 per +allon. d. The ta, on +asoline increases from B7.23 per +allon to B1.77 per +allon. . !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: ; DIF: $%&: Supply and demand (S&: Analytical 22.
Assume that for +ood M the supply cur)e for a +ood is a typical0 upward#slopin+ strai+ht line0 and the demand cur)e is a typical downward#slopin+ strai+ht line. If the +ood is ta,ed0 and the ta, is dou-led0 the a. -ase of the trian+le that represents the deadwei+ht loss quadruples. -. hei+ht of the trian+le that represents the deadwei+ht loss dou-les. c. deadwei+ht loss of the ta, dou-les. d. All of the a-o)e are correct. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: ; DIF: $%&: Supply and demand (S&: Applicati)e 23.
Assume that for +ood M the supply cur)e for a +ood is a typical0 upward#slopin+ strai+ht line0 and the demand cur)e is a typical downward#slopin+ strai+ht line. If the +ood is ta,ed0 and the ta, is dou-led0 the a. -ase of the trian+le that represents the deadwei+ht loss dou-les. -. hei+ht of the trian+le that represents the deadwei+ht loss dou-les. c. deadwei+ht loss of the ta, quadruples. d. All of the a-o)e are correct. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: D DIF: $%&: Supply and demand (S&: Applicati)e

24. Assume that for +ood M the supply cur)e for a +ood is a typical0 upward#slopin+ strai+ht line0 and the demand cur)e is a typical downward#slopin+ strai+ht line. If the +ood is ta,ed0 and the ta, is tripled0 the a. -ase of the trian+le that represents the deadwei+ht loss triples. -. hei+ht of the trian+le that represents the deadwei+ht loss triples. c. deadwei+ht loss of the ta, increases -y a factor of nine. d. All of the a-o)e are correct. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: D DIF: $%&: Supply and demand (S&: Applicati)e 25.
Suppose the ta, on +asoline is raised from B7.37 per +allon to B2.37 per +allon. As a result0 a. ta, re)enue necessarily increases. -. the deadwei+ht loss of the ta, necessarily increases. c. the supply cur)e for +asoline necessarily -ecomes steeper. d. All of the a-o)e are correct. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: ; DIF: $%&: Supply and demand (S&: Applicati)e 2".
Kenry Feor+e ar+ued that the +o)ernment should raise a. all of its re)enue from a ta, on land. -. all of its re)enue from ta,es on la-or. c. most of its re)enue from consumption ta,es. d. ta, re)enue from multiple and di)erse ta,es. 1 !F: T%': "#. $and ta, NAT: Analytic (S&: Definitional
Since the amount of land is fi,ed0 the total supply of land is a. relati)ely elastic. -. perfectly elastic. c. perfectly inelastic. d. relati)ely inelastic. DIF: T%': 1 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
If the supply of land is fi,ed0 the -urden of a ta, on land falls a. partly on landowners and partly on users of land. -. entirely on the renters or users of land. c. entirely on wor*ers. d. entirely on landowners. DIF: T%': 2 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
A ta, on raw land causes a. a lar+e deadwei+ht loss. -. no deadwei+ht loss. c. landlords to -ear none of the -urden of the ta,. d. the +eneration of such a lar+e amount of ta, re)enue that all other ta,es could -e eliminated. DIF: T%': 2 !F: "#. $and ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
/hich of the followin+ statements a-out a land ta, is correctD a. A ta, on raw land causes no deadwei+ht loss. -. $andowners -ear the entire -urden of a ta, on raw land. c. The +o)ernment:s ta, re)enue e,actly equals the loss of the landowners. d. All of the a-o)e are correct. DIF: T%': 2 !F: "#. $and ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
&hapter " 8Application: the &osts of Ta,ation 53 ... /hich of the followin+ statements a-out a land ta, is correctD a. A ta, on raw land causes a small -ut positi)e deadwei+ht loss. -. $andowners and renters share the -urden of a ta, on raw land. c. The +o)ernment:s ta, re)enue e,actly equals the loss of the landowners. d. The supply of impro)ements to land such as sewers and roads is perfectly inelastic. DIF: T%': 2 !F: "#. $and ta, 1 Deadwei+ht loss NAT: Analytic (S&: Interpreti)e
Today>s property ta, a. ta,es only raw land. -. is e,actly the same as Kenry Feor+e>s sin+le#ta, proposal. c. ta,es land and the impro)ements to land. d. has no deadwei+ht loss since the amount of re)enue +oin+ to the +o)ernment equals the reduction in the landowners: surplus. DIF: T%': 2 $and ta, !F: "#. (S&: Definitional NAT: Analytic
In order for Kenry Feor+e>s sin+le ta, on land not to distort economic incenti)es0 the ta, would ha)e to -e on a. impro)ements to land. -. land used for commercial purposes. c. land used for residential purposes. d. raw land. DIF: T%': 2 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
In order for Kenry Feor+e>s land#ta, ar+ument to -e )alid0 the land that is ta,ed must -e a. impro)ed land. -. producti)e land. c. raw land. d. ur-an land. DIF: T%': 2 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
<nli*e the supply of raw land0 the supply of impro)ements a. is perfectly inelastic. -. has an elasticity that is +reater than 9ero. c. cannot -e ta,ed0 e)en if an attempt were made to ta, it. d. is e,empt from ta,ation under current law. DIF: T%': 2 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
ANS: ; $%&: !lasticity .".
If Kenry Feor+e>s sin+le ta, on land were applied today0 a. it would ma*e the supply of land more elastic. -. the deadwei+ht loss would -e much lar+er than the deadwei+ht loss of alternati)e ta,es. c. the ta, would not raise enou+h re)enue to pay for +o)ernment spendin+. d. it would increase immi+ration and decrease technolo+y. DIF: T%': 2 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
Accordin+ to the economist (ilton Friedman0 the Pleast -adP ta, is a ta, on a. income recei)ed from profits and interest. -. la-or income. c. the )alue of unimpro)ed land. d. the )alue of land includin+ the impro)ements to the land. DIF: T%': 1 $and ta, !F: "#. (S&: Definitional NAT: Analytic
ANS: & $%&: !lasticity

27. No-el 'ri9e#winnin+ economist (ilton Friedman said that0 PIn my opinion0 the least -ad ta, is the property ta, on the unimpro)ed )alue of land.P /hyD a. $and owners can afford the ta, -etter than other people. -. A ta, on unimpro)ed land would -e sufficient to fund +o)ernment0 so all other ta,es could -e a-olished. c. Such a ta, could +enerate more +o)ernment re)enue than any ta, on la-or or capital. d. A ta, on unimpro)ed land would ha)e no deadwei+ht loss. DIF: T%': 2 $and ta, !F: "#. (S&: Interpreti)e NAT: Analytic
/hich of the followin+ countries has the hi+hest ta, rateD a. Italy -. &anada c. <nited States d. Capan 2 !F: T%': "#. Ta, rates NAT: Analytic (S&: Definitional
In countries with hi+her ta, rates0 people tend to a. ha)e hi+her standards of li)in+. -. ta*e fewer )acations. c. wor* less. d. pay less into Social Security. 2 !F: T%': "#. NAT: Analytic $a-or 1 Ta, rates
ANS: & DIF: $%&: Supply and demand (S&: Interpreti)e 2..
/hich of the followin+ statements is correctD a. Accordin+ to the e)idence from maLor industrial countries0 there is no si+nificant relationship -etween ta, rates and the a)era+e num-er of hours wor*ed per wee*. -. In the early 1657s0 the a)era+e French wor*er wor*ed more hours per wee* than the a)era+e American wor*er= -y the mid#1667s0 the re)erse was true. c. ;etween the early 1657s and the mid#1667s0 la-or ta,es in France decreased while la-or ta,es in the <nited States increased.. d. All of the a-o)e are correct. 2 !F: T%': "#. Ta,es 1 $a-or NAT: Analytic
ANS: ; DIF: $%&: Supply and demand (S&: Interpreti)e 22.
/hich of the followin+ statements is correctD a. In 277"0 the com-ined Social Security#(edicare ta, amounted to 13.. percent of a wor*er:s income. -. The /hite Kouse -ud+et office has asserted that Social Security and (edicare ha)e promised to pay out B1" trillion more in -enefits than they will recei)e in re)enue in comin+ decades. c. If payroll ta,es are increased to maintain current le)els of Social Security and (edicare -enefits0 an e,pected result would -e fewer hours wor*ed per wee* -y the a)era+e American wor*er. d. All of the a-o)e are correct. 2 !F: T%': "#. NAT: Analytic Ta,es 1 Social Security 1 (edicare
ANS: D DIF: $%&: Supply and demand (S&: Interpreti)e 23.
The hi+her a country>s ta, rates0 the more li*ely that country will -e a. at the top of the $affer cur)e. -. on the positi)ely sloped part of the $affer cur)e. c. on the ne+ati)ely sloped part of the $affer cur)e. d. e,periencin+ small deadwei+ht losses. 2 !F: T%': "#. $affer cur)e NAT: Analytic (S&: Interpreti)e
ANS: & DIF: $%&: Supply and demand
&hapter " 8Application: the &osts of Ta,ation 55 24. Accordin+ to Arthur $affer0 the +raph that represents the amount of ta, re)enue ?measured on the )ertical a,isA as a function of the si9e of the ta, ?measured on the hori9ontal a,isA loo*s li*e a. a <. -. an upside#down <. c. a hori9ontal strai+ht line. d. an upward#slopin+ line or cur)e. 2 !F: T%': "#. $affer cur)e NAT: Analytic (S&: Interpreti)e
ANS: ; DIF: $%&: Supply and demand 25.
The +raph that represents the amount of deadwei+ht loss ?measured on the )ertical a,isA as a function of the si9e of the ta, ?measured on the hori9ontal a,isA loo*s li*e a. a <. -. an upside#down <. c. a hori9ontal strai+ht line. d. an upward#slopin+ cur)e. 2 !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: D DIF: $%&: Supply and demand (S&: Interpreti)e 2".
Supply#side economics is a term associated with the )iews of a. onald ea+an and Arthur $affer. -. Narl (ar,. c. ;ill &linton and Fre+ (an*iw. d. (ilton Friedman. 1 !F: T%': "#. NAT: Analytic Supply#side economics
ANS: A DIF: $%&: Supply and demand (S&: Definitional 26.
The $affer cur)e relates a. the ta, rate to ta, re)enue raised -y the ta,. -. the ta, rate to the deadwei+ht loss of the ta,. c. the price elasticity of supply to the deadwei+ht loss of the ta,. d. +o)ernment welfare payments to the -irth rate. 2 !F: T%': "#. $affer cur)e NAT: Analytic (S&: Definitional
onald ea+an -elie)ed that reducin+ income ta, rates would a. do little0 if anythin+0 to encoura+e hard wor*. -. result in lar+e increases in deadwei+ht losses. c. raise economic well#-ein+ and perhaps e)en ta, re)enue. d. lower economic well#-ein+0 e)en thou+h ta, re)enue could possi-ly increase. 2 !F: T%': "#. NAT: Analytic !conomic welfare 1 $affer cur)e
ANS: & DIF: $%&: Supply and demand (S&: Definitional 31.
The )iew held -y Arthur $affer and onald ea+an that cuts in ta, rates would encoura+e people to increase the quantity of la-or they supplied -ecame *nown as a. &alifornia economics. -. welfare economics. c. supply#side economics. d. elasticity economics. 1 !F: T%': "#. NAT: Analytic Supply#side economics
ANS: & DIF: $%&: Supply and demand (S&: Definitional

32. /hich of the followin+ scenarios is not consistent with the $affer cur)eD a. The ta, rate is )ery low0 and ta, re)enue is )ery low. -. The ta, rate is )ery hi+h0 and ta, re)enue is )ery low. c. The ta, rate is )ery hi+h0 and ta, re)enue is )ery hi+h. d. The ta, rate is moderate ?-etween )ery hi+h and )ery lowA0 and ta, re)enue is relati)ely hi+h. 2 !F: T%': "#. $affer cur)e NAT: Analytic (S&: Interpreti)e
ANS: & DIF: $%&: Supply and demand 3..
/hen a country is on the downward#slopin+ side of the $affer cur)es0 a cut in the ta, rate will a. decrease ta, re)enue and decrease the deadwei+ht loss. -. decrease ta, re)enue and increase the deadwei+ht loss. c. increase ta, re)enue and decrease the deadwei+ht loss. d. increase ta, re)enue and increase the deadwei+ht loss. 2 !F: T%': "#. $affer cur)e NAT: Analytic (S&: Applicati)e
ANS: & DIF: $%&: Supply and demand 32.
In the early 16"7s0 which of the followin+ countries had a mar+inal ta, rate of a-out "7 percentD a. <nited States -. &anada c. Capan d. Sweden . !F: T%': "#. NAT: Analytic Deadwei+ht loss
/hich of the followin+ ideas is the most plausi-leD a. educin+ a hi+h ta, rate is less li*ely to increase ta, re)enue than is reducin+ a low ta, rate. -. educin+ a hi+h ta, rate is more li*ely to increase ta, re)enue than is reducin+ a low ta, rate. c. educin+ a hi+h ta, rate will ha)e the same effect on ta, re)enue as reducin+ a low ta, rate. d. educin+ a ta, rate can ne)er increase ta, re)enue. . !F: T%': "#. $affer cur)e NAT: Analytic (S&: Applicati)e
ANS: ; DIF: $%&: Supply and demand 34.
/hich of the followin+ would li*ely ha)e the smallest deadwei+ht loss relati)e to the ta, re)enueD a. a head ta, ?that is0 a ta, e)eryone must pay re+ardless of what one does or -uysA -. an income ta, c. a ta, on compact discs d. a ta, on ca)iar . !F: T%': "#. NAT: Analytic Deadwei+ht loss
ANS: A DIF: $%&: Supply and demand (S&: Analytical
Sec#0 $ Application: The Costs of Taxation $ Concl,sion

%ULT &LE CHO CE 1. /hen the +o)ernment imposes ta,es on -uyers or sellers of a +ood0 society a. loses some of the -enefits of mar*et efficiency. -. +ains efficiency -ut loses equality. c. is -etter off -ecause the +o)ernment:s ta, re)enues e,ceed the deadwei+ht loss. d. mo)es from an elastic supply cur)e to an inelastic supply cur)e. DIF: T%': 1 !fficiency !F: "#2 (S&: Interpreti)e NAT: Analytic
Ta,es are costly to mar*et participants -ecause they a. transfer resources from mar*et participants to the +o)ernment. -. alter incenti)es. c. distort mar*et outcomes. d. All of the a-o)e are correct.
&hapter " 8Application: the &osts of Ta,ation 56 ANS: D $%&: !lasticity .. DIF: T%': 1 !fficiency !F: "#2 (S&: Interpreti)e NAT: Analytic
Ta,es are of interest to a. microeconomists -ecause they consider how to -alance equality and efficiency. -. microeconomists -ecause they consider how -est to desi+n a ta, system. c. macroeconomists -ecause they consider how policyma*ers can use the ta, system to sta-ili9e economic acti)ity. d. All of the a-o)e are correct. DIF: T%': 1 !fficiency !F: "#2 (S&: Interpreti)e NAT: Analytic

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Chapter 8 Application: the Costs of Taxation

1" &hapter " 8Application: the &osts of Ta,ation

27 &hapter " 8Application: the &osts of Ta,ation

&hapter " 8Application: the &osts of Ta,ation 21

22 &hapter " 8Application: the &osts of Ta,ation

$%&: Supply and demand

2 !F: "#2 Deadwei+ht loss 1 !lasticity

NAT: Analytic (S&: Applicati)e

22 &hapter " 8Application: the &osts of Ta,ation

2 !F: Deadwei+ht loss

NAT: Analytic (S&: Applicati)e

$%&: Supply and demand

Sec## $ Application: The Costs of Taxation

ANS: & NAT: Analytic (S&: Definitional 2.

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24 &hapter " 8Application: the &osts of Ta,ation

Sec#' $ Application: The Costs of Taxation $ The (ea)*ei+ht Loss of Taxation

ANS: D NAT: Analytic (S&: Interpreti)e 2.

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2" &hapter " 8Application: the &osts of Ta,ation

ANS: D NAT: Analytic (S&: Interpreti)e 12.

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ANS: D NAT: Analytic (S&: Interpreti)e 1".

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.7 &hapter " 8Application: the &osts of Ta,ation

ANS: & NAT: Analytic (S&: Definitional 24.

ANS: A NAT: Analytic (S&: Interpreti)e 25.

ANS: & NAT: Analytic (S&: Interpreti)e 2".

ANS: A NAT: Analytic (S&: Interpreti)e 26.

ANS: & NAT: Analytic (S&: Interpreti)e .7.

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.2 &hapter " 8Application: the &osts of Ta,ation

ANS: & NAT: Analytic (S&: Interpreti)e .".

ANS: ; NAT: Analytic (S&: Interpreti)e .6.

ANS: A NAT: Analytic (S&: Interpreti)e 27.