Ch8 Application The Costs Of Taxation Complete Test Bank - Principles of Microeconomics ANZ Edition Test Bank by Joshua Gans. DOCX document preview.
CHAPTER 8 – Application: The costs of taxation
TRUE/FALSE
1. The effect of a tax on a good makes both sellers and buyers better off.
DIF: Easy TOP: How a tax affects market participants
2. A tax places a wedge between the price buyers pay and the price sellers receive.
DIF: Easy TOP: How a tax affects market participants
3. A tax raises the price received by sellers and lowers the price paid by buyers.
DIF: Easy TOP: How a tax affects market participants
4. When a tax is imposed on a market, the government collects revenues. These revenues however, are less than the loss in consumer surplus and producer surplus.
DIF: Moderate TOP: How a tax affects market participants
5. The deadweight loss of a tax is the reduction in total surplus in excess of the tax revenue collected that results from the tax.
DIF: Easy TOP: The deadweight loss of taxation
6. One of the important economic costs of imposing taxes on a market is the deadweight loss.
DIF: Easy TOP: The deadweight loss of taxation
7. Because taxes distort incentives, they cause markets to allocate resources inefficiently.
DIF: Easy TOP: The deadweight loss of taxation
8. The deadweight loss of a tax increases as demand and supply curves become more inelastic.
DIF: Easy TOP: Deadweight loss and tax revenue as taxes vary
9. Suppose the demand curve becomes more elastic, but nothing else changes, this implies that the deadweight loss from a given tax will be smaller.
DIF: Easy TOP: Deadweight loss and tax revenue as taxes vary
10. If a tax did not induce buyers or sellers to change their behaviour, it would not cause a deadweight loss.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
11. If demand is more inelastic than supply, levying a tax on demand will minimise the deadweight loss.
DIF: Moderate TOP: The determinates of deadweight loss
12. Labour taxes encourage workers to work fewer hours, second earners to stay at home, the elderly to retire early, and the unscrupulous to engage in illegal activities.
DIF: Moderate TOP: Case study: The deadweight loss debate
13. The demand for bread is less elastic than the demand for donuts; hence, ceteris paribus, a tax on bread will create a larger deadweight loss than will the same tax on donuts.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
14. A tax on luxuries will create a smaller deadweight loss than will the same tax on necessities, ceteris paribus.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
15. When a tax is levied on a good it usually leads to a change in quantity demanded. All else equal, this change in quantity will be greater the more inelastic the demand curve.
DIF: Moderate TOP: The determinates of deadweight loss
16. A tax on insulin is likely to cause a tremendous deadweight loss to society.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
17. A source of the deadweight loss of taxation is the inefficient use of tax revenue by the government.
DIF: Easy TOP: Deadweight loss and tax revenue as taxes vary
18. Taxes cause inefficiencies only when government revenue is less than the deadweight loss.
DIF: Easy TOP: Deadweight loss and tax revenue as taxes vary
19. Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
20. There is little evidence that the Australian economy is currently in the downward sloping section of the Laffer curve.
DIF: Moderate TOP: Case study: The Laffer curve and supply-side economics
21. If an economy is on the downward sloping section of the Laffer curve, then decreasing taxes would lead to an increase in tax revenue.
DIF: Moderate TOP: Case study: The Laffer curve and supply-side economics
22. The more inelastic the supply and demand curves in a market, the more taxes in that market distort behaviour, and the more likely it is that a tax cut will raise tax revenue.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
23. Government revenue from a tax equals the sum of the lost producer surplus and lost consumer surplus.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
24. Revenue from a tax accruing to Government detracts from total welfare.
DIF: Easy TOP: How a tax affects market participants
25. When a tax is levied on a good buyers are worse off but not sellers.
DIF: Easy TOP: The deadweight loss of taxation
26. A tax levied on the supplier of a product shifts the demand curve downward or to the left.
DIF: Easy TOP: How a tax affects market participants
27. A tax on unimproved land falls entirely on landowners, because the supply of land is perfectly inelastic.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
28. The deadweight loss of taxation may be less than supply and demand analysis suggests as some economic activity may be forced “under the table” where it is not counted in official figures.
DIF: Difficult TOP: Deadweight loss and tax revenue as taxes vary
29. A tax on land will distort economic incentives unless the tax applies only to raw (unimproved) land.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
30. Taxes on land are relatively efficient as the supply of land is inelastic.
DIF: Moderate TOP: FYI: Henry George and the tax on land
MULTIPLE CHOICE
1. A tax on a good:
A. | raises the price buyers pay and lowers the price sellers receive |
B. | raises the price buyers pay and raises the price sellers receive |
C. | lowers the price buyers pay and lowers the price sellers receive |
D. | lowers the price buyers pay and raises the price sellers receive |
DIF: Easy TOP: How a tax affects market participants
2. To evaluate the welfare effects of taxes on economic activity, economists:
A. | do nothing because taxes provide public services that are always valued |
B. | measure changes to consumer and producer surplus |
C. | measure changes to equilibrium price and quantity |
D. | measure expenditures on social welfare by the government |
DIF: Easy TOP: How a tax affects market participants
3. A tax levied on the supplier of a product shifts the:
A. | supply curve upwards or to the left |
B. | supply curve downwards or to the right |
C. | demand curve upwards or to the right |
D. | demand curve downwards or to the left |
DIF: Easy TOP: How a tax affects market participants
4. A tax levied on the buyers of a product shifts the:
A. | supply curve upwards or to the left |
B. | supply curve downwards or to the right |
C. | demand curve upwards or to the right |
D. | demand curve downwards or to the left |
DIF: Easy TOP: How a tax affects market participants
5. When a tax is levied on the sellers of a good:
A. | both buyers and sellers are economically worse off |
B. | only sellers are worse off because they have to pay the tax |
C. | only buyers are worse off because sellers pass the tax on to them |
D. | there is no change because sellers will produce a different good for buyers to purchase |
DIF: Easy TOP: How a tax affects market participants
Graph 8-1
6. According to Graph 8-1, the equilibrium market price before the tax is imposed is:
A. | P3 |
B. | P2 |
C. | P1 |
D. | impossible to determine |
DIF: Easy TOP: How a tax affects market participants
7. According to Graph 8-1, the price buyers pay after the tax is:
A. | P3 |
B. | P2 |
C. | P1 |
D. | impossible to determine |
DIF: Moderate TOP: How a tax affects market participants
8. According to Graph 8-1, the price sellers receive after the tax is:
A. | P3 |
B. | P2 |
C. | P1 |
D. | impossible to determine |
DIF: Moderate TOP: How a tax affects market participants
9. According to Graph 8-1, consumer surplus before the tax was levied is represented by area:
A. | A |
B. | A + B + C |
C. | D + E + F |
D. | F |
DIF: Moderate TOP: How a tax affects market participants
10. According to Graph 8-1, producer surplus before the tax is represented by area:
A. | A |
B. | A + B + C |
C. | D + E + F |
D. | F |
DIF: Moderate TOP: How a tax affects market participants
11. According to Graph 8-1, after the tax is levied, consumer surplus is represented by area:
A. | A |
B. | A + B + C |
C. | D + E + F |
D. | F |
DIF: Difficult TOP: How a tax affects market participants
12. According to Graph 8-1, after the tax is levied, producer surplus is represented by area:
A. | A |
B. | A + B + C |
C. | D + E + F |
D. | F |
DIF: Difficult TOP: How a tax affects market participants
13. According to Graph 8-1, the tax caused a reduction in consumer surplus, it is represented by area:
A. | A |
B. | B + C |
C. | D + E |
D. | F |
DIF: Difficult TOP: How a tax affects market participants
14. According to Graph 8-1, the tax caused a reduction in producer surplus, it is represented by area:
A. | A |
B. | B + C |
C. | D + E |
D. | F |
DIF: Difficult TOP: How a tax affects market participants
15. According to Graph 8-1, the benefits to the government (total tax revenue) is represented by area:
A. | A + B |
B. | B + D |
C. | D + F |
D. | C + E |
DIF: Difficult TOP: How a tax affects market participants
16. According to Graph 8-1, the total surplus (consumer, producer, and government) with the tax is represented by area:
A. | A + B + C |
B. | D + E + F |
C. | A + B + D + F |
D. | C + E |
DIF: Difficult TOP: How a tax affects market participants
17. According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:
A. | A + B + C |
B. | C + E |
C. | D + E + F |
D. | A + B + D + F |
DIF: Difficult TOP: How a tax affects market participants
18. When a tax on a good is enacted:
A. | buyers always bear the full burden of the tax |
B. | sellers always bear the full burden of the tax |
C. | buyers and sellers share the burden of the tax regardless of whom it is levied on |
D. | sellers bear the full burden if the tax is levied on them, but buyers bear the full burden if the tax is levied on them |
DIF: Moderate TOP: How a tax affects market participants
19. The benefit received by the government from a tax is measured by:
A. | deadweight loss |
B. | tax revenue |
C. | equilibrium price |
D. | total surplus |
DIF: Easy TOP: How a tax affects market participants
20. The benefit received by the sellers of a good in a market is measured by:
A. | consumer surplus |
B. | producer surplus |
C. | the amount buyers pay for the good |
D. | the amount it costs to produce the good |
DIF: Easy TOP: How a tax affects market participants
21. The appropriate measure of the benefit from a tax is the:
A. | consumer surplus |
B. | benefit received by those people who gain from government’s expenditure of the tax revenue |
C. | producer surplus |
D. | government’s budget balance, which is increased with more taxes |
DIF: Moderate TOP: How a tax affects market participants
22. Deadweight loss is the:
A. | reduction in total surplus that results from a tax |
B. | loss of profit to businesses when a tax is imposed |
C. | reduction in consumer surplus when a tax is placed on buyers |
D. | decline in government revenue when taxes are reduced in a market |
DIF: Easy TOP: The deadweight loss of taxation
Graph 8-2
23. According to Graph 8-2, the equilibrium market price before the tax is imposed is:
A. | $5 |
B. | $10 |
C. | $15 |
D. | $20 |
DIF: Easy TOP: The deadweight loss of taxation
24. According to Graph 8-2, the price buyers pay after the tax is:
A. | $5 |
B. | $10 |
C. | $15 |
D. | $20 |
DIF: Moderate TOP: The deadweight loss of taxation
25. According to Graph 8-2, the price sellers receive after the tax is:
A. | $5 |
B. | $10 |
C. | $15 |
D. | $20 |
DIF: Moderate TOP: The deadweight loss of taxation
26. According to Graph 8-2, consumer surplus before the tax is levied equals:
A. | $750 |
B. | $3000 |
C. | $1125 |
D. | $1500 |
DIF: Moderate TOP: The deadweight loss of taxation
27. According to Graph 8-2, producer surplus before the tax equals:
A. | $750 |
B. | $3000 |
C. | $1125 |
D. | $1500 |
DIF: Moderate TOP: The deadweight loss of taxation
28. According to Graph 8-2, after the tax is levied, consumer surplus is:
A. | $375 |
B. | $750 |
C. | $1500 |
D. | $1125 |
DIF: Moderate TOP: The deadweight loss of taxation
29. According to Graph 8-2, after the tax is levied, producer surplus is:
A. | $375 |
B. | $750 |
C. | $1500 |
D. | $1125 |
DIF: Moderate TOP: The deadweight loss of taxation
30. According to Graph 8-2, the reduction in consumer surplus caused by the tax is:
A. | $750 |
B. | $1125 |
C. | $375 |
D. | $1000 |
DIF: Moderate TOP: The deadweight loss of taxation
31. According to Graph 8-2, the reduction in producer surplus caused by the tax is:
A. | $750 |
B. | $1125 |
C. | $375 |
D. | $1000 |
DIF: Moderate TOP: The deadweight loss of taxation
32. According to Graph 8-2, the benefits to the government (total tax revenue) is:
A. | $1500 |
B. | $750 |
C. | $1125 |
D. | $375 |
DIF: Moderate TOP: The deadweight loss of taxation
33. According to Graph 8-2, the total surplus (consumer, producer and government) before the tax is:
A. | $6000 |
B. | $3000 |
C. | $1500 |
D. | $750 |
DIF: Moderate TOP: The deadweight loss of taxation
34. According to Graph 8-2, the total surplus (consumer, producer and government) with the tax is:
A. | $2250 |
B. | $1500 |
C. | $1875 |
D. | $1125 |
DIF: Moderate TOP: The deadweight loss of taxation
35. According to Graph 8-2, the amount of deadweight loss in this market resulting from the levying of the tax is:
A. | $1500 |
B. | $1125 |
C. | $375 |
D. | $750 |
DIF: Moderate TOP: The deadweight loss of taxation
36. Assume that a tax is levied on a good and the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people. In this case there would be:
A. | a decrease in consumer surplus to consumers of the taxed good |
B. | a decrease in producer surplus to producers of the taxed good |
C. | a probable increase in the total economic welfare of society |
D. | all of the above would occur |
DIF: Difficult TOP: The deadweight loss of taxation
Phil offers to do Don’s housework for $50 per week. Don’s opportunity cost of doing housework is $65 per week, and Phil’s opportunity cost of doing housework is $20 per week.
37. According to the information provided, what will be Don’s gain in consumer surplus as a result of the proposed transaction?
A. | Don will gain $15 per week |
B. | Don will gain $45 per week |
C. | Don will gain $35 per week |
D. | Don will gain not consumer surplus |
DIF: Moderate TOP: How a tax affects market participants
38. According to the information provided, what will be Phil’s gain in producer surplus as a result of the proposed transaction?
A. | Phil will gain $30 per week |
B. | Phil will gain $15 per week |
C. | Phil will gain $45 per week |
D. | Phil will gain no producer surplus |
DIF: Moderate TOP: Welfare without a tax
39. According to the information provided, the total gain in welfare due to the transaction described here is:
A. | $15 per week |
B. | $65 per week |
C. | $50 per week |
D. | $45 per week |
DIF: Difficult TOP: Welfare without a tax
40. The amount of deadweight loss from taxes depends on:
A. | the price elasticity of demand and supply |
B. | how much of the tax revenue the government plans to spend |
C. | the product the government is planning to tax |
D. | all of the above are correct |
DIF: Easy TOP: Deadweight loss and tax revenue as taxes vary
41. The greater the elasticities of demand and supply the:
A. | smaller the deadweight loss from a tax |
B. | less intrusive a tax will be on a market |
C. | greater the deadweight loss from a tax |
D. | more equitable the distribution of a tax between buyers and sellers |
DIF: Easy TOP: Deadweight loss and tax revenue as taxes vary
42. Suppose the Government is looking to raise revenue by taxing a market and has hired you for advice on minimising the deadweight loss of taxation. In identifying which market to tax, you would advise the government to choose a market where:
A. | supply is highly inelastic and demand is elastic |
B. | supply is highly elastic and demand is inelastic |
C. | any market where both supply or demand is highly inelastic |
D. | any market where both supply or demand is highly elastic |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
43. ‘Assume that the demand for entertainment is more elastic than the demand for petrol’.
According to this statement, compared to the decline in purchases from a similar percentage tax on petrol, we would expect that a tax on entertainment will cause the quantity of entertainment purchased to decline:
A. | more |
B. | less |
C. | the same |
D. | neither more nor less |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
44. ‘Assume that the demand for entertainment is more elastic than the demand for petrol’.
According to this statement, the tax levied on entertainment will cause the loss of consumer surplus to be:
A. | zero |
B. | relatively large |
C. | relatively small |
D. | either small or large (depending on the elasticity of supply) |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
45. ‘Assume that the demand for entertainment is more elastic than the demand for petrol’.
According to this statement, a tax levied on petrol will cause the loss of consumer surplus to be:
A. | zero (because raising the price of gasoline has no effect on the amount purchased) |
B. | relatively large |
C. | relatively small |
D. | either small or large (depending on the elasticity of supply) |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
46. ‘Assume that the supply of forest products is relatively inelastic and the supply of coffee is relatively elastic’. According to this statement, suppose both forest products and coffee have the same percentage tax applied to them, the fall in quantity supplied of forest products will be:
A. | more than the fall in quantity supplied of coffee |
B. | less than the fall in quantity supplied of coffee |
C. | equal to the fall in quantity supplied of coffee |
D. | either more or less than the fall in quantity supplied of coffee, depending on the elasticity of demand |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
47. ‘Assume that the supply of forest products is relatively inelastic and the supply of coffee is relatively elastic’. According to this statement, a tax levied on coffee will cause the loss of producer surplus to be:
A. | relatively large |
B. | relatively small |
C. | zero |
D. | either small or large, depending on the elasticity of demand |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
48. Assume that the demand for salt is relatively inelastic and the demand for orange juice is relatively elastic. Compared to the deadweight loss from the same percentage tax on orange juice, the deadweight loss from imposing a tax on salt would be:
A. | greater |
B. | lesser |
C. | neither greater nor lesser |
D. | either greater or lesser |
DIF: Difficult TOP: Deadweight loss and tax revenue as taxes vary
49. Suppose supply is perfectly inelastic, while demand is relatively elastic. A tax of $1.00 is levied on the purchasers of the good. Which of the following statements is correct?
A. | the government will fail to raise any tax revenue |
B. | there will be a positive deadweight loss |
C. | there will be no deadweight loss |
D. | government revenue will be less than the deadweight loss of the tax. |
DIF: Moderate TOP: The deadweight loss of taxation
50. The marginal tax rate on labour income for many workers in Australia is almost:
A. | 30 per cent |
B. | 40 per cent |
C. | 50 per cent |
D. | 60 per cent |
DIF: Easy TOP: Case study: The deadweight loss debate
51. The greater the social pressure for mothers to be housekeepers and stay out of the labour force the:
A. | more elastic the supply of labour |
B. | less elastic the supply of labour |
C. | flatter the labour supply curve |
D. | greater the reduction in output caused by a tax on labour |
DIF: Moderate TOP: Case study: The deadweight loss debate
52. The less freedom people are given to choose the date of their retirement the:
A. | more elastic the supply of labour |
B. | less elastic the supply of labour |
C. | flatter the labour supply curve |
D. | larger the reduction in output caused by a tax on labour |
DIF: Moderate TOP: Case study: The deadweight loss debate
53. Taxes on labour encourage all of the following, except:
A. | older workers to take early retirement from the labour force |
B. | mothers to stay at home rather than work in the labour force |
C. | workers to work overtime |
D. | people to be paid under the table |
DIF: Moderate TOP: Case study: The deadweight loss debate
54. If the supply of land is fixed, a tax on land would be paid:
A. | entirely by the landowners |
B. | entirely by the renters or users of the land |
C. | partly by landowners and partly by land users |
D. | only by workers |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
55. A tax on land:
A. | would result in a huge deadweight tax loss |
B. | would result in no deadweight tax loss |
C. | causes resource allocation to not be guided by market forces |
D. | would result in none of the above |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
56. As the size of a tax decreases:
A. | the deadweight loss from the tax declines |
B. | the deadweight loss from the tax remains constant |
C. | the deadweight loss from the tax increases |
D. | the deadweight loss could increase or decrease depending on the relative elasticities of demand and supply |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
57. When the size of a tax is doubled, the deadweight loss from the tax:
A. | increases by the size of the tax |
B. | doubles |
C. | remains constant |
D. | increases by four times |
DIF: Moderate TOP: Case study: The Laffer curve and supply-side economics
58. The Laffer curve:
A. | relates income tax rates to total income taxes collected |
B. | was so ridiculous that economists took it as a joke, hence the name, Laffer Curve |
C. | relates tax rates to deadweight welfare losses |
D. | relates government welfare payments to the birth rate |
DIF: Easy TOP: Case study: The Laffer curve and supply-side economics
59. If the government tripled the taxes on new cameras, the deadweight loss from the camera tax would:
A. | more than triple |
B. | triple |
C. | increase by less than triple |
D. | be unchanged |
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
60. The ‘underground’ economy includes:
A. | the mining industry |
B. | the illegal drug trade |
C. | working in a legitimate job |
D. | both B and C |
DIF: Easy TOP: Case study: The deadweight loss debate
61. A major political problem with collecting taxes to finance government spending is that:
A. | taxes make taxpayers worse off since government spending benefits no one |
B. | taxes make taxpayers worse off since government spending benefits only those on welfare |
C. | the people who pay the taxes are often not the same people who benefit from the government spending of tax funds |
D. | taxes reduce economic welfare more than the expenditure of tax funds benefits society |
DIF: Moderate TOP: How a tax affects market participants
62. When a tax is levied on a good:
A. | the quantity of the good sold will change |
B. | the price of the good sold will change |
C. | both price and quantity of the good sold will change |
D. | neither price nor quantity of the good sold will change |
DIF: Easy TOP: How a tax affects market participants
SHORT ANSWER
1. What factors must be taken into account in order to fully understand the effect of taxes on economic wellbeing?
DIF: Moderate TOP: Welfare with a tax
2. Using the graph below for cases of microwave popcorn, calculate:
a. equilibrium price.
b. equilibrium quantity.
c. consumer surplus.
d. producer surplus.
Now suppose that the government imposes a flat $2 tax per case on the sellers of microwave popcorn. Show this on the graph and calculate each of the following after the tax is imposed:
e. price paid by buyers
f. price received by sellers
g. consumer surplus
h. producer surplus
i. government revenue
j. deadweight loss
DIF: Difficult TOP: How a tax affects market participants
3. Using the graph below, determine 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
h. total surplus (consumer surplus + producer surplus + tax revenue) after the tax
i. deadweight loss
DIF: Difficult TOP: How a tax affects market participants
4. Suppose there are 50 sellers in a market, and they each have one unit of a good to sell. There are 50 buyers in this market and the market clears with all of the good traded. Now, government imposes a sales tax on the good. The government levies a $3 tax on the buyers of the good. What is the maximum possible amount of revenue that the government may collect from the tax? Under what conditions will this occur?
DIF: Moderate TOP: How a tax affects market participants
5. Use the graph below to fill in the table.
WITHOUT TAX | WITH TAX | CHANGE | |
Consumer surplus | |||
Producer surplus | |||
Tax revenue | |||
Total surplus |
WITHOUT TAX | WITH TAX | CHANGE | |
Consumer surplus | A + B + C | A | -(B + C) |
Producer surplus | D + E + F | F | -(D + E) |
Tax revenue | None | B + D | (B + D) |
Total surplus | A + B + C + D + E + F | A + B + D + F | -(C + E) |
DIF: Moderate TOP: Changes in welfare
6. Suppose that instead of a supply–demand diagram, you are given the following information:
Qs = 100 + P
Qd = 500– 4P
From this information, compute the equilibrium price (P) and quantity (Q).
Now suppose that a tax (T) is placed on sellers so that
Qs = 100 + (P -T).
If T = 20, solve for the new equilibrium price and quantity. (Note: P-T is the price received by sellers and P is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?
DIF: Difficult TOP: How a tax affects market participants
7. How is the deadweight loss of a tax affected by the elasticities of demand and supply?
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
8. Using demand–supply diagrams, show the difference in deadweight loss between a market with inelastic demand and supply curves and a market with elastic demand and supply curves.
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
9. Illustrate on three demand–supply graphs how the size of a tax (small, medium and large) can alter total revenue and deadweight loss.
DIF: Difficult TOP: Deadweight loss and tax revenue as taxes vary
10. What is the relationship between a change in the size of a tax and the change in the deadweight loss from the tax?
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
11. According to the Laffer curve, what will happen to tax revenue if tax rates are reduced?
DIF: Moderate TOP: Case study: The Laffer curve
and supply-side economics
12. Which economic tool that can predict whether reducing a tax in a market will increase or decrease tax revenue?
DIF: Moderate TOP: Deadweight loss and tax revenue as taxes vary
13. Suppose that a tax is imposed on the log market to discourage deforestation. What would you predict about (a) the size of the deadweight loss of the tax in the short run relative to the long run, and (b) the amount of revenue collected from the tax in the short run relative to the long run? Explain why.
DIF: Difficult TOP: Deadweight loss and tax revenue as taxes vary