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Microeconomics [Ch. 8]

25 Questions
Microeconomics Quizzes & Trivia

Application: The Costs of Taxation

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Questions and Answers
  • 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