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Exam 8: Application: the Costs of Taxation

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Question 31

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Suppose the Government is looking to raise revenue by taxing a market and has hired you for advice on minimising the deadweight loss of taxation.In identifying which market to tax, you would advise the government to choose a market where:

A) supply is highly inelastic and demand is elastic
B) supply is highly elastic and demand is inelastic
C) any market where both supply or demand is highly inelastic
D) any market where both supply or demand is highly elastic

E) A) and C)
F) All of the above

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Question 32

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According to the information provided, assume that Joe is required to pay a tax of $60 when he hires someone to clean his house.Which of the following is true?

A) Jane will continue to clean Joe's home, but consumer surplus will decline
B) Joe will now clean his own home
C) Jane will continue to cleans Joe's home but her producer surplus will decline
D) total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase

E) A) and B)
F) B) and C)

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Question 33

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Graph 8-1 -According to Graph 8-1, the tax caused a reduction in consumer surplus, it is represented by area:

If the government tripled the taxes on new cameras, the deadweight loss from the camera tax would:

Tax cuts and deregulation may cause output in an economy to increase by each of the following, except:

Graph 8-1 -According to Graph 8-1, the tax caused a reduction in producer surplus, it is represented by area:

What is the relationship between a change in the size of a tax and the change in the deadweight loss from the tax?

Suppose Australia puts the same tax on cycads harvested in the wild and ornamental ferns sold in nurseries.Cycads are a very slow growing plant that is subject to a small, regular harvest in the wild, often by Aborigines.Assume that the tax is the same for both plants and that the elasticity of demand is the same for both plants.What would be the difference in the tax burden for these cycads and ferns and why?

Economists disagree on whether labour taxes have a small or a large deadweight loss.

One of the important economic costs of imposing taxes on a market is the deadweight loss.

Taxes on labour encourage all of the following, except:

A tax levied on the supplier of a product shifts the demand curve downward or to the left.

Graph 8-3 -According to Graph 8-3, producer surplus before the tax equals:

If the supply of land is fixed, a tax on land would be paid:

Graph 8-2 This graph shows supply and demand in a free market. -According to Graph 8-2, when the market is in equilibrium, producer surplus is represented by area:

A tax raises the price received by sellers and lowers the price paid by buyers.

Assume that the demand for salt is relatively inelastic and the demand for orange juice is relatively elastic.Compared to the deadweight loss from the same percentage tax on orange juice, the deadweight loss from imposing a tax on salt would be:

The deadweight loss of taxation may be less than supply and demand analysis suggests as some economic activity may be forced "under the table" where it is not counted in official figures.

The greater the elasticities of demand and supply the:

Graph 8-1 -According to Graph 8-1, the benefits to the government (total tax revenue) is represented by area: