Chapter 8Application: The Costs of TaxationTest A1. A tax levied on the buyers of a product shifts thea. demand curve upward or to the right.b. demand curve downward or to the left.c. supply curve upward or to the left.d. supply curve downward or to the right.ANSWER: b. demand curve downward or to the left.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y2. When a tax is levied on a gooda. buyers are worse off but sellers are not.b. sellers are worse off but buyers are not.c. neither buyers nor sellers are worse off.d. both buyers and sellers are worse off.ANSWER: d. both buyers and sellers are worse off.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y3. When a tax on a good is enacted,a. sellers always bear the full burden of the tax.b. buyers always bear the full burden of the tax.c. buyers and sellers share the burden of the tax regardless of which party 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 taxis levied on them.ANSWER: c. buyers and sellers share the burden of the tax regardless of which party it is levied on. TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y4. A tax placed on a gooda. causes the price of the good to fall.b. causes the size of the market for the good to shrink.c. affects buyers of the good, but not sellers.d. is usually borne entirely by the seller of the good.ANSWER: b. causes the size of the market for the good to shrink.TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y5. When a tax is levied on a gooda. the market price falls because demand declines.b. the market price falls because supply falls.c. the market price rises because demand falls.d. a wedge is placed between the price buyers pay and the price sellers receive.ANSWER: d. a wedge is placed between the price buyers pay and the price sellers receive.TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y84 ❖ Chapter 8/Application: The Costs of Taxation6. The benefit received by the sellers of a good in a market is measured bya. producer surplus.b. consumer surplus.c. the amount it costs producers to produce the good.d. the amount buyers pay for the good in excess of the amount the good is actually worth. ANSWER: a. producer surplus.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y7. According to the graph, the equilibrium market price before the tax is imposed isa. P3.b. P2.c. P1.d. impossible to determine.ANSWER: c. P1.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y8. According to the graph, the price buyers pay after the tax isa. P3.b. P2.c. P1.d. impossible to determine.ANSWER: a. P3.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y9. According to the graph, the price sellers receive after the tax isa. P3.b. P2.c. P1.d. impossible to determine.ANSWER: b. P2.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: YChapter 8/Application: The Costs of Taxation ❖ 8510. According to the graph, consumer surplus before the tax was levied is represented by areaa. A.b. F.c. A + B + C.d. D + E + F.ANSWER: c. A + B + C.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y11. According to the graph, before the tax the producer surplus is represented by areaa. A.b. F.c. A + B + C.d. D + E + F.ANSWER: d. D + E + F.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y12. According to the graph, the tax caused a reduction in consumer surplus represented by areaa. A.b. F.c. B + C.d. D + E.ANSWER: c. B + C.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y13. According to the graph, the tax caused a reduction in producer surplus represented by areaa. A.b. F.c. B + C.d. D + E.ANSWER: d. D + E.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y14. According to the graph, the benefits to the government (total tax revenue) are represented by areaa. A + B.b. C + E.c. B + D.d. D + F.ANSWER: c. B + D.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y15. According to the graph, the total surplus (consumer, producer, and government) with the tax isrepresented by areaa. C + E.b. A + B + C.c. D + E + F.d. A + B + D + F.ANSWER: d. A + B + D + F.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y86 ❖ Chapter 8/Application: The Costs of Taxation16. According to the graph, the loss in total welfare resulting from the levying of the tax is represented byareaa. C + E.b. A + B + C.c. D + E + F.d. A + B + D + F.ANSWER: a. C + E.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y17. Deadweight loss is thea. decline in government revenue when taxes are reduced in a market.b. reduction in total surplus that results from a tax.c. reduction in consumer surplus when a tax is placed on buyers.d. loss of profit to businesses when a tax is imposed.ANSWER: b. reduction in total surplus that results from a tax.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y18. The greater the elasticities of demand and supply thea. smaller the deadweight loss from a tax.b. greater the deadweight loss from a tax.c. less intrusive a tax will be on a market.d. more equitable the distribution of a tax between buyers and sellers.ANSWER: b. greater the deadweight loss from a tax.TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y19. Economists generally agree that the most important tax in the U.S. economy is the tax ona. labor.b. consumption.c. personal property.d. income.ANSWER: a. labor.TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y20. If the supply of land is fixed, a tax on land would be paida. only by workers.b. entirely by the landowners.c. entirely by the renters or users of the land.d. partly by landowners and partly by land users.ANSWER: b. entirely by the landowners.TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y21. As the size of a tax increasesa. the deadweight loss from the tax remains constant.b. the deadweight loss from the tax declines.c. the deadweight loss from the tax increases.d. no one knows how the deadweight loss changes because no tax has ever been reduced. ANSWER: c. the deadweight loss from the tax increases.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: YChapter 8/Application: The Costs of Taxation ❖ 8722. One side-effect of the tax cuts made during Ronald Reagan’s terms as president wasa. increased tax revenues.b. large budget deficits.c. small budget surpluses.d. decreased government spending.ANSWER: b. large budget deficits.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 3 RANDOM: Y23. The views held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people toincrease the quantity of labor they supplied became known asa. Laffer economics.b. welfare economics.c. microeconomics.d. supply-side economics.ANSWER: d. supply-side economics.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y24. The higher a country’s tax rates the more likely that country will bea. above the Laffer curve.b. on the top of the Laffer curve.c. on the negatively-sloped part of the Laffer curve.d. on the positively-sloped part of the Laffer curve.ANSWER: c. on the negatively-sloped part of the Laffer curve.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 4 RANDOM: Y25. A major political problem with collecting taxes to finance government spending is thata. taxes make taxpayers worse off since government spending benefits no one.b. the people who pay the taxes are often not the same people who benefit from the governmentspending of tax funds.c. taxes make taxpayers worse off since government spending benefits only those on welfare.d. taxes reduce economic welfare more than the expenditure of tax funds benefits society. ANSWER: b. the people who pay the taxes are often not the same people who benefit from the government spending of tax funds.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 4 RANDOM: Y1 ANSWER: b. demand curve downward or to the left.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y2 ANSWER: d. both buyers and sellers are worse off.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y3 ANSWER: c. buyers and sellers share the burden of the tax regardless of which party it is levied on. TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y88 ❖ Chapter 8/Application: The Costs of Taxation4 ANSWER: b. causes the size of the market for the good to shrink.TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y5 ANSWER: d. a wedge is placed between the price buyers pay and the price sellers receive. TYPE: M KEY1: C SECTION: 1 OBJECTIVE: 1 RANDOM: Y6 ANSWER: a. producer surplus.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y7 ANSWER: c. P1.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y8 ANSWER: a. P3.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y9 ANSWER: b. P2.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y10 ANSWER: c. A + B + C.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y11 ANSWER: d. D + E + F.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y12 ANSWER: c. B + C.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y13 ANSWER: d. D + E.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y14 ANSWER: c. B + D.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y15 ANSWER: d. A + B + D + F.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: YChapter 8/Application: The Costs of Taxation ❖ 89 16 ANSWER: a. C + E.TYPE: M KEY1: G SECTION: 1 OBJECTIVE: 1 GRAPH FORMAT: M RANDOM: Y17 ANSWER: b. reduction in total surplus that results from a tax.TYPE: M KEY1: D SECTION: 1 OBJECTIVE: 1 RANDOM: Y18 ANSWER: b. greater the deadweight loss of a tax.TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y19 ANSWER: a. labor.TYPE: M KEY1: D SECTION: 2 OBJECTIVE: 2 RANDOM: Y20 ANSWER: b. entirely by the landowners.TYPE: M KEY1: C SECTION: 2 OBJECTIVE: 2 RANDOM: Y21 ANSWER: c. the deadweight loss from the tax increases.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y22 ANSWER: b. large budget deficits.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 3 RANDOM: Y23 ANSWER: d. supply-side economics.TYPE: M KEY1: C SECTION: 3 OBJECTIVE: 3 RANDOM: Y24 ANSWER: c. on the negatively-sloped part of the Laffer curve.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 4 RANDOM: Y25 ANSWER: b. the people who pay the taxes are often not the same people who benefit from thegovernment spending of tax funds.TYPE: M KEY1: D SECTION: 3 OBJECTIVE: 4 RANDOM: YChapter 8。