Chapter 8Applications: The Costs of Taxation1. The market will be in equilibrium with a tax on sales of a good when a. the quantity demanded equals the quantity supplied and the price buyers pay exceeds the price sellers receive by the per-unit tax. b. the price received by the seller equals the price paid by the buyer and the quantity demanded is less than the quantity supplied by the amount of the tax. c. the tax is equal to the price paid by the buyer and quantity demanded is equal to the quantity supplied. d. there cannot be a market equilibrium with a tax on sales.ANSWER: a the quantity demanded equals the quantity supplied and the price buyers pay exceeds the price sellers receive by the per-unit tax.SECTION: 1 OBJECTIVE: 12. The tax rate on a good is the a. total amount of taxes paid by consumers on that good. b. total amount of taxes paid by producers on that good. c. total amount of taxes paid by both producers and consumers on that good. d. per-unit tax on a good, expressed as a percentage of its price.ANSWER: d per-unit tax on a good, expressed as a percentage of its price.SECTION: 1 OBJECTIVE: 13. Deadweight loss a. means that there is a loss to some individuals without a corresponding gain to others. b. is not really a loss to society because what one individual loses another individual gains. c. can be eliminated by sales taxes. d. can occur even if output is at the efficient level.ANSWER: a means that there is a loss to some individuals without a corresponding gain to others.SECTION: 1 OBJECTIVE: 14. Deadweight loss measures the a. the amount people would pay to gain an additional unit of a good. b. the loss from economic inefficiency. c. the difference between two efficient situations. d. the amount required to compensate producers for lost surplus due to the imposition of a sales tax.ANSWER: b the loss from economic inefficiency.SECTION: 1 OBJECTIVE: 15. The deadweight loss from an economically inefficient situation is equal to a. consumer surplus minus producer surplus. b. consumer surplus plus producer surplus. c. the consumer and producer surplus that people could gain by eliminating that inefficiency. d. the increase in consumer surplus minus the increase in producer surplus that people could gain by eliminating that inefficiency.ANSWER: c the consumer and producer surplus that people could gain by eliminating that inefficiency.SECTION: 1 OBJECTIVE: 16. A per-unit tax on a good creates deadweight loss because a. it makes demand more inelastic. b. it makes supply more elastic. c. by increasing the price consumers pay, and reducing the price sellers receive, it prevents some mutually beneficial trades. d. the government wastes the tax revenues it receives.ANSWER: c by increasing the price consumers pay, and reducing the price sellers receive, it prevents some mutually beneficial trades.SECTION: 1 OBJECTIVE: 17. Consider the impact of a tax in the market described in this diagram. The equilibrium price and quantity exchanged in the market before the tax is a. $100 and 25 units. b. $20 and 20 units. c. $19 and 20 units. d. $0 and 25 units.ANSWER: b $20 and 20 units.SECTION: 1 OBJECTIVE: 1
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