Taxes and Subsidies – Flashcards

When a tax is levied on a good, the buyers and sellers of the good share the burden, Answers: a. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. b. provided the tax is levied on the buyers. c. regardless of how the tax is levied. d. provided the tax is levied on the sellers.

A tax on a good Answers: a. raises the price that buyers effectively pay and lowers the price that sellers effectively receive. b. lowers the price that buyers effectively pay and lowers the price that sellers effectively receive. c. lowers the price that buyers effectively pay and raises the price that sellers effectively receive. d. raises the price that buyers effectively pay and raises the price that sellers effectively receive.

The government's benefit from a tax can be measured by Answers: a. consumer surplus. b. producer surplus. c. tax revenue. d. All of the above are correct.

A tax levied on the sellers of a good shifts the Answers: a. supply curve downward (or to the right). b. demand curve upward (or to the right). c. supply curve upward (or to the left). d. demand curve downward (or to the left).

If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on Answers: a. sellers of the good. b. We cannot infer anything because the shift described is not consistent with a tax. c. buyers of the good. d. both buyers and sellers of the good.

It does not matter whether a tax is levied on the buyers or the sellers of a good because Answers: a. sellers always bear the full burden of the tax. b. buyers always bear the full burden of the tax. c. buyers and sellers will share the burden of the tax. d. None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.

When the government places a tax on a product, the cost of the tax to buyers and sellers Answers: a. is less than the revenue raised from the tax by the government. b. is equal to the revenue raised from the tax by the government. c. exceeds the revenue raised from the tax by the government. d. Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue.

Taxes cause deadweight losses because taxes Answers: a. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. b. prevent buyers and sellers from realizing some of the gains from trade. c. cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. d. All of the above are correct.

The price elasticities of supply and demand affect Answers: a. the size of the deadweight loss from a tax but not the tax incidence. b. the tax incidence but not the size of the deadweight loss from a tax. c. both the size of the deadweight loss from a tax and the tax incidence. d. neither the size of the deadweight loss from a tax nor the tax incidence.

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the Answers: a. demand for the product is more elastic than the supply of the product. b. supply of the product is more elastic than the demand for the product. c. tax is placed on the buyers of the product. d. tax is placed on the sellers of the product.

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic, Answers: a. sellers of the good will bear most of the burden of the tax. b. both equilibrium price and quantity will increase. c. buyers and sellers will each bear 50 percent of the burden of the tax. d. buyers of the good will bear most of the burden of the tax.

Table 8-1 Market Characteristic A-Demand is very inelastic. B-Demand is very elastic. C-Supply is very inelastic. D-Supply is very elastic. Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax? Answers: a. market C only b. market A only c. markets B and D only d. markets A and C only