True/False Indicate whether the
sentence or statement is true or false.
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1.
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In general, a tax raises the price the buyers pay,
lowers the price the sellers receive, and reduces the quantity sold.
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2.
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If a tax is placed on a good and it reduces the
quantity sold, there must be a deadweight loss from the tax.
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3.
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Deadweight loss is the reduction in consumer
surplus that results from a tax.
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4.
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When a tax is placed on a good, the revenue the
government collects is exactly equal to the loss of consumer and producer surplus from the
tax.
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5.
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If John values having his hair cut at €20 and
Mary's cost of providing the hair cut is €10, any tax on hair cuts larger than €10
will eliminate the gains from trade and cause a €20 loss of total surplus.
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6.
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If a tax is placed on a good in a market where
supply is perfectly inelastic, there is no deadweight loss and the sellers bear the entire burden of
the tax.
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7.
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A tax on cigarettes would likely generate a larger
deadweight loss than a tax on luxury boats.
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8.
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A tax will generate a greater deadweight loss if
supply and demand are inelastic.
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9.
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A tax causes a deadweight loss because it
eliminates some of the potential gains from trade.
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10.
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A larger tax always generates more tax
revenue.
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11.
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A larger tax always generates a larger deadweight
loss.
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12.
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If an income tax rate is high enough, a reduction
in the tax rate could increase tax revenue.
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13.
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A tax collected from buyers generates a smaller
deadweight loss than a tax collected from sellers.
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14.
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If a tax is doubled, the deadweight loss from the
tax more than doubles.
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15.
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A deadweight loss results when a tax causes market
participants to fail to produce and consume units on which the benefits to the buyers exceeded the
costs to the sellers.
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Multiple Choice Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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Refer to Exhibit 4. If there is no tax placed on
the product in this market, consumer surplus is the area
a. | C + D + F. | b. | A. | c. | A + B +
E. | d. | D + C + B. | e. | A + B + C. |
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17.
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Refer to Exhibit 4. If there is no tax placed on
the product in this market, producer surplus is the area
a. | A + B + E. | b. | D. | c. | C +
F. | d. | A + B + C + D. | e. | C + D + F. |
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18.
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Refer to Exhibit 4. If a tax is placed on the
product in this market, consumer surplus is the area
a. | D. | b. | A. | c. | A + B +
E. | d. | A + B + C + D. | e. | A + B. |
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19.
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Refer to Exhibit 4. If a tax is placed on the
product in this market, producer surplus is the area
a. | A + B + E. | b. | A + B + C + D. | c. | A. | d. | D. | e. | C + D +
F. |
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20.
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Refer to Exhibit 4. If a tax is placed on the
product in this market, tax revenue paid by the buyers is the area
a. | B + C + E + F. | b. | B. | c. | B +
C. | d. | A. | e. | C. |
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21.
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Refer to Exhibit 4. If a tax is placed on the
product in this market, tax revenue paid by the sellers is the area
a. | C + F. | b. | A. | c. | B. | d. | B + C + E +
F. | e. | C. |
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22.
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Refer to Exhibit 4. If there is no tax placed on
the product in this market, total surplus is the area
a. | B + C + E + F. | b. | E + F. | c. | A + B + C +
D. | d. | A + B + C + D + E + F. | e. | A + D + E + F. |
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23.
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Refer to Exhibit 4. If a tax is placed on the
product in this market, total surplus is the area
a. | A + B + C + D + E + F. | b. | A + B + C + D. | c. | A +
D. | d. | B + C + E + F. | e. | E + F. |
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24.
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Refer to Exhibit 4. If a tax is placed on the
product in this market, deadweight loss is the area
a. | B + C + E + F. | b. | E + F. | c. | B +
C. | d. | A + B + C + D. | e. | A + D. |
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25.
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Refer to Exhibit 4. Which of the following is true
with regard to the burden of the tax in Exhibit 4?
a. | The buyers pay a larger portion of the tax because
demand is more inelastic than supply. | b. | The sellers pay a
larger portion of the tax because supply is more elastic than demand. | c. | The buyers pay a larger portion of the tax because demand is more elastic than
supply. | d. | The sellers pay a larger portion of the tax because
supply is more inelastic than demand. |
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26.
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Which of the following would likely cause the
greatest deadweight loss?
a. | a tax on salt | b. | a tax on cigarettes | c. | a tax on
petrol | d. | a tax on cruise line
tickets |
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27.
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A tax on petrol is likely to
a. | generate a deadweight loss that is unaffected by the
time period over which it is measured. | b. | cause a greater
deadweight loss in the long run when compared to the short run. | c. | none of these answers | d. | cause a greater
deadweight loss in the short run when compared to the long
run. |
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28.
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Deadweight loss is greatest when
a. | supply is elastic and demand is perfectly
inelastic. | b. | demand is elastic
and supply is perfectly inelastic. | c. | both supply and
demand are relatively inelastic. | d. | both supply and
demand are relatively elastic. |
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29.
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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. |
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30.
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Which of the following is true with regard to a tax
on labour income? Taxes on labour income tend to encourage
a. | the unscrupulous to enter the underground
economy. | b. | the elderly to retire early. | c. | all of the things described in these answers. | d. | second earners to stay home. | e. | workers to work fewer hours. |
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31.
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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 |
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32.
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The graph that shows the relationship between the
size of a tax and the tax revenue collected by the government is known as a
a. | none of these answers | b. | Reagan curve. | c. | Keynesian
curve. | d. | Laffer curve. | e. | Henry George curve. |
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33.
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If a tax on a good is doubled, the deadweight loss
from the tax
a. | doubles. | b. | stays the same. | c. | increases by a
factor of four. | d. | could rise or
fall. |
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34.
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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. |
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35.
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When a tax distorts incentives to buyers and
sellers so that fewer goods are produced and sold than otherwise, the tax has
a. | caused a deadweight loss. | b. | decreased equity. | c. | generated no tax
revenue. | d. | increased
efficiency. |
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