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Exam 8: Application: The Costs of Taxation

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Question 51

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Figure 8-11 -Refer to Figure 8-11. The deadweight loss of the tax is represented by the

A) length of the line segment connecting points A and B.
B) length of the line segment connecting points A and C.
C) length of the line segment connecting points B and C.
D) area of the triangle bounded by the points A, B, and C.

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Question 52

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If the tax on gasoline increases from $2 to $4 per gallon, the deadweight loss from the tax increases by a factor of

A) one-half.
B) two.
C) four.
D) six.

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Question 53

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Use the following graph shown to fill in the table that follows.

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, producer surplus in this market is

Suppose the government levies a tax of the vertical distance from point A to point B. Using the graph shown, determine the value of each of the following: a. equilibrium price before the tax b. consumer surplus before the tax c. producer surplus before the tax d. total surplus before the tax e. consumer surplus after the tax f. producer surplus after the tax g. total tax revenue to the government h. total surplus consumer surplus+producer surplus+tax revenue) after the tax i. deadweight loss

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The total surplus without the tax is

Figure 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to the deadweight loss from the tax?

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The price that sellers receive is

Deadweight loss is the

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point B on the curve, then a small decrease in the tax rate will

The deadweight loss from a tax

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Producer surplus without the tax is

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

Figure 8-28 -Refer to Figure 8-28. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 1 and Supply 2. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.