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Chapter 8 Practice Questions



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

When a good is taxed
a.
both buyers and sellers are worse off.
b.
only buyers are worse off because they ultimately pay the majority of the tax.
c.
only sellers are worse off because the government holds them responsible for collecting the tax.
d.
neither buyers nor sellers are worse off since tax revenue is used to provide goods and services that would otherwise not be provided by the market.
 

2. 

Buyers of a product will pay the majority of a tax placed on a product when
a.
the tax is placed on the seller of the product.
b.
the demand is more elastic than supply.
c.
supply is more elastic than demand.
d.
the tax is placed on the buyer of the product.
 

3. 

A tax imposed on a market with an inelastic demand and an elastic supply will cause
a.
sellers to pay the majority of the tax.
b.
buyers to pay the majority of the tax.
c.
the tax burden to be equally divided between buyers and sellers.
d.
the tax burden to be divided, but it cannot be determined how.
 

4. 

The benefit received by the government from a tax is measured by
a.
deadweight loss.
b.
tax revenue.
c.
equilibrium price.
d.
total surplus.
 

5. 

When a tax is imposed on a good we know that the losses to buyers and sellers
a.
are equal to the revenue raised by the government.
b.
are less than the revenue raised by the government.
c.
exceed the revenue raised by the government.
d.
cannot be compared to the tax revenue raised by the government since the amount of the tax will vary from good to good.
 

6. 

The loss in total surplus resulting from a tax is called
a.
a deficit.
b.
economic loss.
c.
deadweight loss.
d.
inefficiency.
 
 
Figure 8-4
chapter_8_practice__files/i0080000.jpg
 

7. 

Refer to Figure 8-4. The tax caused a reduction in producer surplus represented by area
a.
A.
b.
B + C.
c.
D + E.
d.
F.
 
 
Scenario 8-2
Sheila offers to do Stephanie's housework for $20 per week. Stephanie's opportunity cost of doing housework is $30 per week, and Sheila's opportunity cost of doing housework is $10 per week.
 

8. 

Refer to Scenario 8-2. What will be Stephanie's gain in consumer surplus as a result of the proposed transaction?
a.
Stephanie will gain $30 per week.
b.
Stephanie will gain $20 per week.
c.
Stephanie will gain $10 per week.
d.
Stephanie will gain no consumer surplus.
 

9. 

The social security tax is primarily a tax on
a.
earnings from labor.
b.
interest income.
c.
real estate holdings.
d.
consumption spending.
 

10. 

Taxes on labor encourage all of the following EXCEPT
a.
older workers to take early retirement from the labor force.
b.
mothers to stay at home rather than work in the labor force.
c.
workers to work overtime.
d.
people to be paid under the table.
 



 
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