EC320 MCQ

TO P I C 6 : TA X I N C I D E N C E
MCQ 1
Suppose the pre-tax price of cigarettes is $3 per pack and the post-tax price is $4 per pack. The tax is
$1.50 per pack and is paid by the retailers of cigarettes to the government. Prior to the tax, 600 packs were
sold; after the tax, 500 packs were sold. What is the consumer tax burden per pack of cigarettes? What is
the statutory incidence of the tax on consumers?

a. $1, $0
b. $1.50, $1
c. $2.50, $1.50
d. $3, $1.50
MCQ 1
Suppose the pre-tax price of cigarettes is $3 per pack and the post-tax price is $4 per pack. The tax is
$1.50 per pack and is paid by the retailers of cigarettes to the government. Prior to the tax, 600 packs were
sold; after the tax, 500 packs were sold. What is the consumer tax burden per pack of cigarettes? What is
the statutory incidence of the tax on consumers?

a. $1, $0
b. $1.50, $1
c. $2.50, $1.50
d. $3, $1.50
MCQ 2
Suppose the pre-tax price of gasoline is $1 per gallon. An imposed tax of $0.50 per gallon is paid by
producers to the government, increasing the price of gasoline to $1.30 per gallon. The gross price after the
tax is _____; the after-tax price is _____.

a. $1.30, $0.80
b. $1.30, $1.80
c. $1.80, $1.30
d. $1.80, $0.80
MCQ 2
Suppose the pre-tax price of gasoline is $1 per gallon. An imposed tax of $0.50 per gallon is paid by
producers to the government, increasing the price of gasoline to $1.30 per gallon. The gross price after the
tax is _____; the after-tax price is _____.

a. $1.30, $0.80
b. $1.80, $1.30
c. $1.30, $1.80
d. $1.80, $0.80
MCQ 3

Which statement is TRUE?

a. In labour markets, workers always bear the full burden of a tax

b. In labour markets, workers bear the full burden of a tax only when the tax is levied on workers

c. In labour markets, workers bear more of the burden of a payroll tax if labour supply is highly inelastic

d. Tax incidence is based on which party has the legal obligation to pay a tax
MCQ 3

Which statement is TRUE?

a. In labour markets, workers always bear the full burden of a tax

b. In labour markets, workers bear the full burden of a tax only when the tax is levied on workers

c. In labour markets, workers bear more of the burden of a payroll tax if labour supply is highly inelastic

d. Tax incidence is based on which party has the legal obligation to pay a tax
MCQ 4

Suppose that the elasticities of demand for apples, bananas, and peaches are –0.9, –1.6, and –0.8, respectively.
Assume that all else is identical in these three products and that an identical tax is levied on each good. Rank
the products from highest to lowest in terms of the deadweight loss caused by the tax In labour markets,
workers always bear the full burden of a tax
a. apples, bananas, peaches

b. apples, peaches, bananas

c. bananas, apples, peaches

d. bananas, peaches, apples

MCQ 4

Suppose that the elasticities of demand for apples, bananas, and peaches are –0.9, –1.6, and –0.8, respectively.
Assume that all else is identical in these three products and that an identical tax is levied on each good. Rank
the products from highest to lowest in terms of the deadweight loss caused by the tax In labour markets,
workers always bear the full burden of a tax
a. apples, bananas, peaches

b. apples, peaches, bananas

c. bananas, apples, peaches

d. bananas, peaches, apples

MCQ 5

The Ramsey Rule leads to the conclusion that an efficient tax is one for which the apples, bananas, peaches
a. deadweight loss per dollar of tax revenue generated from commodity taxes is equal to the deadweight loss
per dollar of tax revenue generated from income taxes
b. ratio of the price elasticity of demand to the tax is equal across commodities

c. per unit tax is equal across commodities.

d. deadweight loss per dollar of tax revenue associated with an additional dollar of taxes on that commodity is
equal across commodities.
MCQ 5

The Ramsey Rule leads to the conclusion that an efficient tax is one for which the
a. deadweight loss per dollar of tax revenue generated from commodity taxes is equal to the deadweight loss
per dollar of tax revenue generated from income taxes
b. ratio of the price elasticity of demand to the tax is equal across commodities

c. per unit tax is equal across commodities.

d. deadweight loss per dollar of tax revenue associated with an additional dollar of taxes on that commodity is
equal across commodities.
MCQ 6

The deadweight loss of a tax measure is

a. deadweight loss per dollar of tax revenue associated with an additional dollar of taxes on that commodity is
equal across commodities.

b. the amount of consumer and producer surplus that society loses by imposing a tax.

c. the decline in consumer surplus relative to the decline of producer surplus caused by imposing a tax.

d. the amount of tax revenue taken from consumers and producers

MCQ 6

The deadweight loss of a tax measure is

a. deadweight loss per dollar of tax revenue associated with an additional dollar of taxes on that commodity is
equal across commodities.

b. the amount of tax revenue taken from consumers and producers

c. the amount of consumer and producer surplus that society loses by imposing a tax.

d. the decline in consumer surplus relative to the decline of producer surplus caused by imposing a tax.