8: Tax

Question 1

How does a tax affect consumer surplus

Answer 1

Q

Question 2

What is the deadweight loss of a tax

Answer 2

DWL is the fall in total surplus that results from a market distortion, such as a tax

Question 3

What factors determine the size of this deadweight loss?

Answer 3

It depends on the price elasticity of supply and demand: the more elastic is supply, the larger DWL

Question 4

How does tax revenue depend on the size of the tax?

Answer 4

.

Question 5

When a tax on a good starts small and is gradually increased, tax revenue

a. will fall.
b. will rise.
c. will first rise and then fall.
d. will first fall and then rise.
e. none of these answers

Answer 5

C

Question 6

The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a ___?

Answer 6

Laffer curve

Question 7

The reduction of a tax

a. will have no impact on tax revenue.
b. will always reduce tax revenue regardless of the prior size of the tax.
c. could increase tax revenue if the tax had been extremely high.
d. causes a market to become less efficient.

Answer 7

C

Question 8

Since the supply of undeveloped land is relatively inelastic, a tax on undeveloped land would generate

a. a small deadweight loss and the burden of the tax would fall on the renter.
b. a large deadweight loss and the burden of the tax would fall on the landlord.
c. a large deadweight loss and the burden of the tax would fall on the renter.
d. a small deadweight loss and the burden of the tax would fall on the landlord.

Answer 8

D

Question 9

Adam Smith’s “invisible hand” concept suggests that a competitive market outcome

a. maximizes total surplus.
b. generates equality among the members of society.
c. minimizes total surplus.
d. both maximizes total surplus and generates equality among the members of society.

Answer 9

A