Quiz 557

Related: Economics, Microeconomics

59 Questions

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Quiz 557

Subjective Short Answer

1. In terms of gains from trade, why is it true that taxes cause deadweight losses?

2. A tax is imposed on a certain good. The tax produces revenue of $5,000 for the government.
The tax reduces consumer surplus by $3,000 and it reduces producer surplus by $4,000. What is
the amount of the deadweight loss of the tax?

Figure 8-25

3. Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

4. Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

5. Refer to Figure 8-25. How much is producer surplus at the market equilibrium?

6. Refer to Figure 8-25. How much is total surplus at the market equilibrium?

7. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. What
price will consumers pay for the good after the tax is imposed?

8. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. What
price will sellers receive for the good after the tax is imposed?

9. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How
many units of this good will be bought and sold after the tax is imposed?

10. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How
much is consumer surplus after the tax is imposed?
11. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How
much is producer surplus after the tax is imposed?

12. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How
much tax revenue is collected after the tax is imposed?

13. Refer to Figure 8-25. Suppose the government increases the size of the tax on this good from
$4 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay
the same?

14. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How
much is total surplus after the tax is imposed?

15. Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How
much is the deadweight loss from this tax?

Scenario 8-3

Suppose the market demand and market supply curves are given by the equations:

16. Refer to Scenario 8-3. What are the equilibrium price and equilibrium quantity in this
market?

17. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

What price will sellers receive and what price will buyers pay after the tax is imposed?

18. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

What quantity will be bought and sold after the tax is imposed?

19. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

How much tax revenue will be collected after this tax is imposed?

20. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

What will be the deadweight loss from this tax?

21. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:
If T = 40, what price will buyers pay and what price will sellers receive?

22. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

If T = 40, how many units will be bought and sold after the tax is imposed?

23. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

If T = 40, how much tax revenue will be collected from this tax?

24. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

If T = 40, how much is the burden of the tax on the buyers and on the sellers?

25. Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve
becomes:

If T = 40, how much will be the deadweight loss from this tax?

Figure 8-26

26. Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?

27. Refer to Figure 8-26. How much is consumer surplus at the market equilibrium?

28. Refer to Figure 8-26. How much is producer surplus at the market equilibrium?

29. Refer to Figure 8-26. How much is total surplus at the market equilibrium?

30. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What
price will consumers pay for the good after the tax is imposed?

31. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What
price will sellers receive for the good after the tax is imposed?

32. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How
many units of this good will be bought and sold after the tax is imposed?

33. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How
much is consumer surplus after the tax is imposed?

34. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How
much is producer surplus after the tax is imposed?
35. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How
much tax revenue is collected after the tax is imposed?

36. Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from
$3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay
the same?

37. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How
much is total surplus after the tax is imposed?

38. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How
much is the deadweight loss from this tax?

Figure 8-27

39. Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1,
and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each
market, the tax will create a larger deadweight loss in which market? Explain.

Figure 8-28

40. 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.

41. Provide several examples of important taxes on labor in the United States. For a typical
worker, what is the marginal tax rate on labor income once all the labor taxes are summed?

42. Is the United States’ labor supply more inelastic or more elastic? Briefly summarize the
competing theories.

43. The demand for energy drinks is more elastic than the demand for milk. Would a tax on
energy drinks or a tax on milk have a larger deadweight loss? Explain.

44. Suppose that the market for product X is characterized by a typical, downward-sloping,
linear demand curve and a typical, upward-sloping, linear supply curve. Suppose the price
elasticity of supply is 0.7. Will the deadweight loss from a $3 tax per unit be smaller if the
absolute value of the price elasticity of demand is 0.6 or if the absolute value of the price
elasticity of demand is 1.5?

45. Suppose the demand curve and the supply curve in a market are both linear, and suppose the
price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the
price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

46. Suppose that the market for product X is characterized by a typical, downward-sloping,
linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit
results in a deadweight loss of $200, how large would be the deadweight loss from a $4 tax per
unit?

47. Suppose that the market for product X is characterized by a typical, downward-sloping,
linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit
results in a deadweight loss of $200, how large would be the deadweight loss from a $6 tax per
unit?

48. Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per
unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax
per unit?

49. Suppose the demand curve and the supply curve in a market are both linear. To begin, there
was a $5 tax per unit, and the $5 tax resulted in a deadweight loss of $1,500. Now, the tax per
unit is higher, with the higher tax resulting in a deadweight loss of $6,000. What is the amount of
the new tax per unit?

Figure 8-29

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

51. 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?

52. Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which
would you choose and why?

53. Describe the Laffer curve.

54. 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

55. John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity
cost is $15, and Willa would be willing to pay $25 to have her lawn mowed. What is the
maximum tax the government can impose on lawn mowing without discouraging John and Willa
from continuing their mutually beneficial arrangement?
56. Use the following graph shown to fill in the table that follows.

WITHOUT TAX WITH TAX CHANGE

57. Suppose that instead of a supply-demand diagram, you are given the following information:

Qs = 100 + 3P
Qd = 400 - 2P

From this information compute equilibrium price and quantity. Now suppose that a tax is placed
on buyers so that
Qd = 400 - 2(P + T).

If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by
sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and
quantity with your first answers. What does this show you?

58. Using demand and supply diagrams, show the difference in deadweight loss between (a) a
market with inelastic demand and supply and (b) a market with elastic demand and supply.

59. Illustrate on three demand-and-supply graphs how the size of a tax (small, medium and large)
can alter total revenue and deadweight loss.