Multiple Choice Questions
1. A tax on a good has a deadweight loss if
a. The reduction in consumer and producer surplus is greater than the tax revenue.
b. The tax revenue is greater than the reduction in consumer and producer surplus.
c. The reduction in consumer surplus is greater than the reduction in producer surplus.
d. The reduction in producer surplus is greater than the reduction in consumer surplus.
2. Jane pays Chuck $50 to mow her lawn every week. When the government levies a mowing tax of $10 on Chuck, he raises his price to $60. Jane continues to hire him at the higher price. What is the change in producer surplus, change in consumer surplus, and deadweight loss?
a. $0, $0, $10
b. $0, −$10, $0
c. +$10, −$10, $10
d. +$10, −$10, $0
3. Eggs have a supply curve that is linear and upward sloping and a demand curve that is linear and downward sloping. If a 2 cent per egg tax is increased to 3 cents, the deadweight loss of the tax
a. Increases by less than 50 percent and may even decline.
b. Increases by exactly 50 percent.
c. Increases by more than 50 percent.
d. The answer depends on whether supply or demand is more elastic.
4. Peanut butter has an upward-sloping supply curve and a downward-sloping demand curve. If a 10 cent per pound tax is increased to 15 cents, the government's tax revenue
a. Increases by less than 50 percent and may even decline.
b. Increases by exactly 50 percent.
c. Increases by more than 50 percent.
d. The answer depends on whether supply or demand is more elastic.
5. The Laffer curve illustrates that, in some circumstances, the government can reduce a tax on a good and increase the
a. Deadweight loss.
b. Government's tax revenue.
c. Equilibrium quantity.
d. Price paid by consumers.
6. If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with __________ elasticities of demand and __________ elasticities of supply.
a. Small, small
b. Small, large
c. Large, small
d. Large, large