CHAPTER 10 QUESTION POOL Flashcards
Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity
of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus
by $3,000 and it decreases producer surplus by $4,400. The deadweight loss of the tax is
a) $600.
b) $1,200.
c) $6,200.
d) $300.
A
When demand is more elastic than supply,
a) consumers pay the entire tax if demand is perfectly elastic.
b) the burden of a tax falls more heavily on producers.
c) the burden of a tax falls more heavily on buyers.
d) the tax will not lead to a deadweight loss.
B
There is excess supply in the market for printers. What could have been the cause for this?
a) There is a binding price ceiling.
b) There is a non-binding price ceiling.
c) There is a binding price floor.
d) There is a non-binding price floor
C
Consider a perfectly competitive market. Market demand is Q(P)=20−P. Market supply is Q
(P) = 8 + 2P. The government introduces a per unit tax t = 3. What is the deadweight loss
from the introduction of the tax?
a) 9
b) 12
c) 1.5
d) 3
D
The demand curve for pizza in Perilia is vertical (i.e., demand is perfectly inelastic), the
supply curve is neither perfectly elastic, nor perfectly inelastic. If a tax is imposed on each
pizza bought,
a) the burden of the tax will fall entirely on the buyers.
b) the burden of the tax will fall entirely on the sellers.
c) the tax incidence on the sellers will be higher than that on the buyers.
d) the deadweight loss due to taxation will be large.
A
Consider a perfectly competitive market. The demand curve is given by P (Q) = 180 − 0.5Q
and the supply curve is given by P (Q) = 80 + 2Q. The government introduces a tax: each
consumer must pay €80 to the government for every unit the consumer buys. How high is the
tax revenue?
a) 1600
b) 400
c) 1280
d) 640
D
Which statement is correct?
a) Rent control is a common example of a price floor.
b) To be binding a price floor has to be set above the equilibrium price.
c) A binding price ceiling will lead to excess supply.
d) A binding price ceiling will increase producer surplus.
B
Consider our discussion of taxation in perfectly competitive markets. Which statement is
correct?
a) Whether the government places a per unit tax on the consumers or the producers will make
a difference for who will end up paying that tax.
b) In a market where demand is very elastic and supply is not very elastic, tax incidence will
be higher for producers (i.e., producers will pay a higher share of the tax).
c) If the government wants to avoid deadweight loss, it should taxs goods with a perfectly
elastic demand.
d) When demand is perfectly inelastic, producers will bear the entire tax burden (i.e., pay the
entire tax).
B
A government imposes a binding price ceiling on a perfectly competitive market. The price
ceiling changes the equilibrium quantity (i.e., it has bite). Which of the following does NOT
occur (compared to the situation before the introduction of the price ceiling, holding
everything else equal)?
a) Producer surplus decreases.
b) Some consumers are made better off, while others are made worse off.
c) The demand curve shifts to the left.
d) There is a loss of social surplus.
C
Consider a perfectly competitive market for chocolate bars. The inverse demand is given by P
(Q) = 190 − Q. Inverse supply is given by P (Q) = 10 + 2Q. The government wants to
introduce a tax such that consumers buy 40 chocolate bars (i.e., QTax = 40). Which tax rate t
should the government set?
a) 150
b) 55
c) 60
d) 40
C
Consider a perfectly competitive market. The demand curve is given by Q(P) = 5P. The
government introduces a tax: each consumer must pay 2 Euro to the government for every
unit the consumer buys. How high is the tax revenue?
a) 5
b) 20
c) 160
d) 90
D
Which of the following statements is correct?
(Assume that there is no tax free income bracket for low incomes, i.e., people already have to
pay income tax on the first euro they earn.)
a) In a regressive tax system, the marginal tax rate is always higher than the average tax rate.
b) In a regressive tax system, the marginal tax rate is equal to the average tax rate.
c) In a proportional tax system, the average tax rate is higher than the marginal tax rate.
d) In a progressive tax system, the marginal tax rate is higher than the average tax rate
D
A price floor above the equilibrium price will result in ____.
a) deadweight loss as long as neither demand nor supply are completely inelastic
b) an increase in the market quantity
c) an increase in consumer surplus
d) a decrease in market price
A
