Question 1

When the government subsidizes driving by building roadways, the demand for gasoline:

Accepted Answer

A)   increases.
B)   decreases.
C)   is not effected.
D)   changes unpredictably.

Question 2

Let the price elasticity of supply for a good be 1.5, and the absolute value of the price elasticity of demand be 2.0. Which of the following is TRUE in this case?

Accepted Answer

A)   Producers carry the majority of the tax burden.
B)   Consumers carry the majority of the tax burden.
C)   Producers and consumers carry an equal amount of the tax burden.
D)   Consumers carry the entire tax burden.

Question 3

Which of the following statements is TRUE? A tax and subsidy are similar in that:
I. they both create a deadweight loss.
II. the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply.
III. they both change the equilibrium level of output.

Accepted Answer

A)   I only
B)   I and II only
C)   I, II, and III
D)   I and III only

Question 4

With a tax on producers, demand:

Accepted Answer

A)   increases.
B)   decreases.
C)   remains in the same location.
D)   shifts in an indeterminate direction.

Question 5

Use the following to answer questions:
Figure: Supply Tax 
-(Figure: Supply Tax)  In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

Accepted Answer

A)   $12
B)   $11.50
C)   $10
D)   $9.50

Question 6

The supply of labor is not very internationally mobile, in part because people in different countries speak different languages. If everyone learned the same language, worker mobility would increase and:

Accepted Answer

A)   the supply of labor in each country would become more inelastic.
B)   the deadweight loss of a given tax on labor would decrease.
C)   the demand for labor in each country would become more elastic.
D)   governments would not be able to raise as much revenue through taxes on labor.

Question 7

As long as neither supply nor demand is perfectly elastic, both suppliers and demanders will pay part of any tax.

Accepted Answer

A) True 
 B)False

Question 8

Suppose the government is attempting to discourage consumption of two goods: Good X and Good Y. Good X has a very elastic demand and Good Y has a very inelastic demand. The government plans to implement a tax on the suppliers of both goods. If the elasticity of supply for both goods is perfectly elastic, which tax will be more effective at reducing consumption and why?

Accepted Answer

The tax on the good with the more elasti...

Question 9

A tax that creates the smallest deadweight loss occurs in markets with inelastic demand and inelastic supply curves.

Accepted Answer

A) True 
 B)False

Question 10

If the government taxes walnuts at 50 cent a package, who pays the tax?

Accepted Answer

A)   walnut manufacturers
B)   walnut retailers
C)   walnut consumers
D)   Walnut retailers and consumers

Question 11

Figure: Commodity Tax with Elastic Supply  According to the figure, who bears the greater burden of the tax?

Accepted Answer

A)   The buyer will bear the greater burden of the tax.
B)   The seller will bear the greater burden of the tax.
C)   The buyer and the seller will split the tax burden equally.
D)   The government will bear the full burden of the tax.

Question 12

Use the following to answer questions:
Figure: Imposition of a Tax 
-(Figure: Imposition of a Tax)  Refer to the figure. After the imposition of a $4 tax, the government collects revenues of:

Accepted Answer

A)   $75.
B)   $100.
C)   $210.
D)   $50.

Question 13

Let the price elasticity of supply for a good be 2.0, and the absolute value of the price elasticity of demand be 1.5. Which of the following is TRUE in this case?

Accepted Answer

A)   Producers carry the majority of the tax burden.
B)   Consumers carry the majority of the tax burden.
C)   Producers and consumers carry an equal amount of the tax burden.
D)   Consumers carry the entire tax burden.

Question 14

Use the following to answer questions:
Figure: Soda Market 
-(Figure: Soda Market)  After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.95 per unit. What is the value of the per unit tax?

Accepted Answer

A)   $5.00
B)   $0.50
C)   $0.05
D)   $0.01

Question 15

A ________ creates a situation in which the price received by sellers ________ the price paid by buyers.

Accepted Answer

A)   tax; exceeds
B)   tax; equals
C)   subsidy; is less than
D)   subsidy; exceeds

Question 16

On June 23, 2011, Honduras announced new taxes on various industries including the telephone industry. If local consumers have access to the Internet independent of telephones, and the local phone industry's main consumer base is in Honduras, who will bear most of burden of this tax and why?

Accepted Answer

A)   Consumers will bear most of the burden; their demand curve for phones is more elastic because of the few substitutes at their disposal.
B)   Consumers will bear most of the burden; their demand curve for phones is more inelastic because of having access to the Internet.
C)   Producers will bear most of the burden; their supply curve for phones is more inelastic because of the difficulty in moving their operations to another country.
D)   Producers will bear most of the buden; their supply curve for phones is more elastic because they can import phones from all over the world.

Question 17

The burden of a tax rests most heavily with the party who can better "escape" the tax.

Accepted Answer

A) True 
 B)False

Question 18

When supply and demand are equally elastic,

Accepted Answer

A)   producers carry the majority of the tax burden.
B)   consumers carry the majority of the tax burden.
C)   producers and consumers carry an equal amount of the tax burden.
D)   consumers carry all of the tax burden.

Question 19

If the goal is to reduce cigarette consumption per smoker through taxation, a federal tax is ______ effective than a state tax.

Accepted Answer

A)   more
B)   equally
C)   less
D)   more or less (depending upon the state)

Question 20

According to economic theory, consumers should support taxes on the producer, and producers should support taxes on the consumer.

Accepted Answer

A) True 
 B)False

Exam 6: Taxes and Subsidies

According to economic theory, consumers should support taxes on the producer, and producers should support taxes on the consumer.

Correct Answer
verified

The burden of a tax rests most heavily with the party who can better "escape" the tax.

Correct Answer
verified

Let the price elasticity of supply for a good be 2.0, and the absolute value of the price elasticity of demand be 1.5. Which of the following is TRUE in this case?

Correct Answer
verified

When the government subsidizes driving by building roadways, the demand for gasoline:

Correct Answer
verified

A creates a situation in which the price received by sellers the price paid by buyers.

Correct Answer
verified

Let the price elasticity of supply for a good be 1.5, and the absolute value of the price elasticity of demand be 2.0. Which of the following is TRUE in this case?

Correct Answer
verified

With a tax on producers, demand:

Correct Answer
verified

As long as neither supply nor demand is perfectly elastic, both suppliers and demanders will pay part of any tax.

Correct Answer
verified

Correct Answer
verified
The tax on the good with the more elasti...
View Answer

Figure: Commodity Tax with Elastic Supply According to the figure, who bears the greater burden of the tax?

Correct Answer
verified

The supply of labor is not very internationally mobile, in part because people in different countries speak different languages. If everyone learned the same language, worker mobility would increase and:

Correct Answer
verified

If the goal is to reduce cigarette consumption per smoker through taxation, a federal tax is ______ effective than a state tax.

Correct Answer
verified

If the government taxes walnuts at 50 cent a package, who pays the tax?

Correct Answer
verified

Use the following to answer questions: Figure: Imposition of a Tax -(Figure: Imposition of a Tax) Refer to the figure. After the imposition of a $4 tax, the government collects revenues of:

Correct Answer
verified

Which of the following statements is TRUE? A tax and subsidy are similar in that: I. they both create a deadweight loss. II. the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply. III. they both change the equilibrium level of output.

Correct Answer
verified

Use the following to answer questions: Figure: Supply Tax -(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

Correct Answer
verified

On June 23, 2011, Honduras announced new taxes on various industries including the telephone industry. If local consumers have access to the Internet independent of telephones, and the local phone industry's main consumer base is in Honduras, who will bear most of burden of this tax and why?

Correct Answer
verified

A tax that creates the smallest deadweight loss occurs in markets with inelastic demand and inelastic supply curves.

Correct Answer
verified

When supply and demand are equally elastic,

Correct Answer
verified

Use the following to answer questions: Figure: Soda Market -(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.95 per unit. What is the value of the per unit tax?

Correct Answer
verified

Exam 6: Taxes and Subsidies

According to economic theory, consumers should support taxes on the producer, and producers should support taxes on the consumer.

Correct AnswerverifiedShow Answer

The burden of a tax rests most heavily with the party who can better "escape" the tax.

Correct AnswerverifiedShow Answer

Let the price elasticity of supply for a good be 2.0, and the absolute value of the price elasticity of demand be 1.5. Which of the following is TRUE in this case?

Correct AnswerverifiedShow Answer

When the government subsidizes driving by building roadways, the demand for gasoline:

Correct AnswerverifiedShow Answer

A ________ creates a situation in which the price received by sellers ________ the price paid by buyers.

Correct AnswerverifiedShow Answer

Let the price elasticity of supply for a good be 1.5, and the absolute value of the price elasticity of demand be 2.0. Which of the following is TRUE in this case?

Correct AnswerverifiedShow Answer

With a tax on producers, demand:

Correct AnswerverifiedShow Answer

As long as neither supply nor demand is perfectly elastic, both suppliers and demanders will pay part of any tax.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe tax on the good with the more elasti...View AnswerShow Answer

Figure: Commodity Tax with Elastic Supply According to the figure, who bears the greater burden of the tax?

Correct AnswerverifiedShow Answer

The supply of labor is not very internationally mobile, in part because people in different countries speak different languages. If everyone learned the same language, worker mobility would increase and:

Correct AnswerverifiedShow Answer

If the goal is to reduce cigarette consumption per smoker through taxation, a federal tax is ______ effective than a state tax.

Correct AnswerverifiedShow Answer

If the government taxes walnuts at 50 cent a package, who pays the tax?

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Imposition of a Tax -(Figure: Imposition of a Tax) Refer to the figure. After the imposition of a $4 tax, the government collects revenues of:

Correct AnswerverifiedShow Answer

Which of the following statements is TRUE? A tax and subsidy are similar in that: I. they both create a deadweight loss. II. the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply. III. they both change the equilibrium level of output.

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Supply Tax -(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

Correct AnswerverifiedShow Answer

On June 23, 2011, Honduras announced new taxes on various industries including the telephone industry. If local consumers have access to the Internet independent of telephones, and the local phone industry's main consumer base is in Honduras, who will bear most of burden of this tax and why?

Correct AnswerverifiedShow Answer

A tax that creates the smallest deadweight loss occurs in markets with inelastic demand and inelastic supply curves.

Correct AnswerverifiedShow Answer

When supply and demand are equally elastic,

Correct AnswerverifiedShow Answer

Use the following to answer questions: Figure: Soda Market -(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.95 per unit. What is the value of the per unit tax?

Correct AnswerverifiedShow Answer

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A creates a situation in which the price received by sellers the price paid by buyers.

Correct Answer
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The tax on the good with the more elasti...
View Answer

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