Microeconomics Quiz: The Cost Of Taxation
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Application: The Costs of Taxation
- 1.In general, a tax raises the price the buyers pay, lowers the price the sellers receive, and reduces the quantity sold
- A.
True
- B.
False
- 2.If a tax is placed on a good and it reduces the quantity sold, there must be a deadweight loss from the tax
- A.
True
- B.
False
- 3.Deadweight loss is the reduction in consumer suprlus that results from a tax
- A.
True
- B.
False
- 4.When a tax is placed on a good, the revenue the government collects is exactly equal to the loss of consumer and producer surplus from the tax
- A.
True
- B.
False
- 5.If John values having his hair cut at $20 and Mary's cost of providing the haircut is $10, any tax on haircuts larger than $10 will eliminate the gains from trade and cause a $20 loss of total surplus
- A.
True
- B.
False
- 6.A tax causes a deadweight loss because it eliminates some of the potential gains from trade
- A.
True
- B.
False
- 7.A larger tax always generates more tax revenue
- A.
True
- B.
False
- 8.A larger tax always generates a larger deadweight loss
- A.
True
- B.
False
- 9.If an income tax rate is high enough, a reduction in the tax rate could increase tax revenue
- A.
True
- B.
False
- 10.A tax collected from buyers generates a smaller deadweight loss than a tax collected from sellers
- A.
True
- B.
False
- 11.If a tax is doubled, the deadweight loss from the tax more than doubles
- A.
True
- B.
False
- 12.A deadweight loss results when a tax causes market participants to fail to produce and consume units on which the benefits to the buyers exceed the costs to sellers
- A.
True
- B.
False
- 13.If there is no tax placed on the product in this market, consumer surplus is the area
- A.
A + B + C
- B.
D + C + B
- C.
A + B + E
- D.
C + D + F
- E.
A
- 14.If there is no tax placed on the product in this market, producer surplus is the area
- A.
A + B + C + D
- B.
C + D + F
- C.
D
- D.
C + F
- E.
A + B + E
- 15.If a tax is placed on the product in this market, consumer surplus is the area
- A.
A
- B.
A + B
- C.
A + B + E
- D.
A + B + C + D
- E.
D
- 16.If a tax is placed on the product in this market, producer surplus is the area
- A.
A
- B.
A + B + E
- C.
C + D + E
- D.
D
- E.
A + B + C + D
- 17.If a tax is placed on the product in this market, tax revenue paid by the buyers is the area
- A.
A
- B.
B
- C.
C
- D.
B + C
- E.
B + C + E + F
- 18.If tax is placed on the product in this market, tax revenue paid by the sellers is the area
- A.
A
- B.
B
- C.
C
- D.
C + F
- E.
B + C + E + F
- 19.If there is no tax placed on the product in this market, total surplus is the area
- A.
A + B + C + D
- B.
A + B + C + D + E + F
- C.
B + C + E + F
- D.
E + F
- E.
A + D + E + F
- 20.If a tax is placed on the product in this market, total surplus is the area
- A.
A + B + C + D
- B.
A + B + C + D + E + F
- C.
B + C + E + F
- D.
E + F
- E.
A + D
- 21.If a tax is placed on the product in this market, deadweight loss is the area
- A.
B + C
- B.
B + C + E + F
- C.
A + B + C + D
- D.
E + F
- E.
A + D
- 22.The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a
- A.
Deadweight curve
- B.
Tax revenue curve
- C.
Laffer curve
- D.
Reagan curve
- E.
None of the above is true
- 23.If a tax on a good is doubled, the deadweight loss from the tax
- A.
Stays the same
- B.
Doubles
- C.
Increases by a factor of four
- D.
Could rise or fall
- 24.The reduction of a tax
- A.
Could increase tax revenue if the tax had been extremely high
- B.
Will always reduce tax revenue regardless of the prior size of the tax
- C.
Will have no impact on tax revenue
- D.
Causes a market to become less efficient
- 25.When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold, the tax has
- A.
Increase efficiency
- B.
Reduced the price buyers pay
- C.
Generated no tax revenue
- D.
Caused a deadweight loss
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