ECN111 Additional Multiple Choice Questions, Tax Handout (Phoenix College)

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Dr. Bromley ECN111 (Macroeconomics): Additional Multiple Choice Questions
Tax Handout Questions

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underlined letter.

All contents are ©2000 by Ray Bromley

T-1 Which of the following is not a true statement about taxes?
A. Taxes can be avoided, which is one reason why they reduce utility and efficiency.
B. When a tax is imposed, the price paid by the buyer of a good will generally rise by less than the full amount of the tax.
C. When a tax is imposed, the quantity of a good that is sold could rise, could fall, or could stay unchanged; we can't predict the result without more information.
D. Part of a good's tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. A tax on a good is paid mostly by buyers if the demand curve is steeper than the supply curve.

T-2 Which of the following is not a true statement about taxes?
A. The excess burden of a tax is greater if the demand or supply curves (or both) are flat.
B. In reality, a tax is borne (paid) mostly by the suppliers, if they are the ones who send the money to the government.
C. Every tax has an excess burden (sometimes called deadweight loss).
D. Part of every tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. The revenue to the government from an excise tax is the tax per unit multiplied by the quantity of the good that is sold after the tax goes into effect.

T-3 Which of the following is not a true statement about taxes?
A. The excess burden of a tax is greater if the demand or supply curves (or both) are flat.
B. In reality, a tax is borne (paid) mostly by the suppliers only if the supply curve is steeper than the demand curve. If the demand curve is steeper than the supply curve, buyers pay most of the tax.
C. Every tax has an excess burden (sometimes called deadweight loss).
D. Part of every tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. The revenue to the government from an excise tax is the tax per unit multiplied by the quantity of the good that is sold before the tax goes into effect.

T-4 Which of the following is not a true statement about taxes?
A. The excess burden of a tax is greater if the demand or supply curves (or both) are steep.
B. In reality, a tax is borne (paid) mostly by the suppliers only if the supply curve is steeper than the demand curve. If the demand curve is steeper than the supply curve, buyers pay most of the tax.
C. Every tax has an excess burden (sometimes called deadweight loss).
D. Part of every tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. The revenue to the government from an excise tax is the tax per unit multiplied by the quantity of the good that is sold after the tax goes into effect.

T-5 Which of the following is not a true statement about taxes?
A. The excess burden of a tax is greater if the demand or supply curves (or both) are flat.
B. In reality, a tax is borne (paid) mostly by the suppliers only if the supply curve is flatter than the demand curve. If the demand curve is flatter than the supply curve, buyers pay most.
C. Every tax has an excess burden (sometimes called deadweight loss).
D. Part of every tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. The revenue to the government from an excise tax is the tax per unit multiplied by the quantity of the good that is sold after the tax goes into effect.

T-6 Which of the following is not a true statement about taxes?
A. Taxes can be avoided, which is one reason why they reduce utility and efficiency.
B. When a tax is imposed, the price paid by the buyer of a good will generally rise by exactly the amount of the tax.
C. When a tax is imposed, the quantity of a good that is sold must fall.
D. Part of a good's tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. A tax on a good is paid mostly by buyers if the demand curve is steeper than the supply curve.

T-7 Which of the following is not a true statement about taxes?
A. Taxes can be avoided, which is one reason why they reduce utility and efficiency.
B. When a tax is imposed, the price paid by the buyer of a good will generally rise by more than the amount of the tax.
C. When a tax is imposed, the quantity of a good that is sold must fall.
D. Part of a good's tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. A tax on a good is paid mostly by buyers if the demand curve is steeper than the supply curve.

T-8 Which of the following is not a true statement about taxes?
A. Taxes can be avoided, which is one reason why they reduce utility and efficiency.
B. When a tax is imposed, the price paid by the buyer of a good will generally rise by less than the amount of the tax.
C. When a tax is imposed, the quantity of a good that is sold must fall.
D. Part of a good's tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. A tax on a good is paid mostly by buyers unless the demand curve is steeper than the supply curve..

T-9 Which of the following is not a true statement about taxes?
A. Taxes cannot be avoided, which is one reason why they reduce utility and efficiency.
B. When a tax is imposed, the price paid by the buyer of a good will generally rise by less than the amount of the tax.
C. When a tax is imposed, the quantity of a good that is sold must fall.
D. Part of a good's tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. A tax on a good is paid mostly by buyers if the demand curve is steeper than the supply curve.

T-10 Which of the following is not a true statement about taxes?
A. Taxes can be avoided, which is one reason why they reduce utility and efficiency.
B. When a tax is imposed, the price retained by the seller of a good will generally fall by exactly the amount of the tax.
C. When a tax is imposed, the quantity of a good that is sold must fall.
D. Part of a good's tax is paid by buyers out of consumer surplus, and part is paid by sellers out of producer surplus.
E. A tax on a good is paid mostly by buyers if the demand curve is steeper than the supply curve.

"El Cheapo" is a new brand of video tape in Phoenix stores. Questions 11-19 refer to the following diagram, which is Phoenix area supply and demand for "El Cheapo".

T-11 Suppose a special tax of one dollar (per videotape purchased) is placed on the purchasers of video tape, to discourage people from becoming "couch potatoes". By how much will the final price paid (ignoring other taxes like State sales tax) for "El Cheapo" rise? (hint: it may help you to draw in the appropriate curves)
A. Not at all.
B. About fifty cents.
C. About one dollar.
D. More than one dollar.
E. Cannot tell.

T-12 Suppose a special tax of one dollar (per videotape purchased) is placed on the purchasers of video tape. How many video tapes will be purchased after the tax is in place?
A. About 10 thousand.
B. About 20 thousand.
C. About 30 thousand.
D. About 40 thousand.
E. More than 40 thousand or I cannot tell.

T-13. Suppose a special tax of one dollar (per videotape purchased) is placed on the purchasers of video tape. What is the total tax revenue raised by the government?
A. About 10 thousand dollars or less.
B. About 20 thousand dollars.
C. About 30 thousand dollars.
D. About 40 thousand dollars.
E. More than 40 thousand dollars or I cannot tell.

T-14 The proportion (percentage) of the total tax payment that is paid by the producers of the tapes is
A. About one-fourth.
B. About one-third.
C. About one-half.
D. Less than one-fourth.
E. More than one-half, or I cannot tell.

T-15 Suppose a special tax of two dollars (per videotape purchased) is placed on the purchasers of video tape. By how much will the final price paid (ignoring other taxes like State sales tax) for "El Cheapo" rise? (hint: it may help you to draw in the appropriate curves)
A. Not at all.
B. About fifty cents.
C. About one dollar.
D. More than one dollar.
E. Cannot tell.

T-16 Suppose a special tax of two dollars (per videotape purchased) is placed on the purchasers of video tape. How many video tapes will be purchased after the tax is in place?
A. About 10 thousand.
B. About 20 thousand.
C. About 30 thousand.
D. About 40 thousand.
E. More than 40 thousand or I cannot tell.

T-17. Suppose a special tax of two dollars (per videotape purchased) is placed on the purchasers of video tape. What is the total tax revenue raised by the government?
A. About 10 thousand dollars or less.
B. About 20 thousand dollars.
C. About 30 thousand dollars.
D. About 40 thousand dollars.
E. More than 40 thousand dollars or I cannot tell.

T-18. Suppose a special tax of three dollars (per videotape purchased) is placed on the purchasers of video tape. What is the total tax revenue raised by the government?
A. About 10 thousand dollars or less.
B. About 20 thousand dollars.
C. About 30 thousand dollars.
D. About 40 thousand dollars.
E. More than 40 thousand dollars or I cannot tell.

T-19 The proportion (percentage) of the total tax payment that is paid by the producers of the tapes is
A. About one-fourth.
B. About one-third.
C. About one-half.
D. Less than one-fourth.
E. More than one-half, or I cannot tell.

T-20 As an excise tax on a good is increased, what will happen to the revenues raised by the government from the tax?
A. Revenues always increase as the excise tax is increased.
B. Revenues always fall as the excise tax is increased.
C. At low tax rates, an increase in the tax will increase revenue. At higher tax rates, raising the tax rate will reduce revenue.
D. At low tax rates, an increase in the tax will decrease revenue. At higher tax rates, raising the tax rate will increase revenue.
E. Revenues may go up or may go down, but there is no way to tell which will happen.

T-21 The supply curve for a particular kind of labor is relatively steep, while the demand curve is fairly flat. If a new payroll (salary) tax is imposed, what would you predict?
A. The after-tax (take home) pay of workers will rise.
B. The after-tax (take-home) pay of workers will not be affected.
C. Most of the tax will be absorbed by employees.
D. Most of the tax will be absorbed by employers.
E. The number of employees hired will rise.

T-22 The supply curve for a particular kind of labor is relatively flat, while the demand curve is fairly steep. If a new payroll (salary) tax is imposed, what would you predict?
A. The after-tax (take home) pay of workers will rise.
B. The after-tax (take-home) pay of workers will not be affected.
C. Most of the tax will be absorbed by employees.
D. Most of the tax will be absorbed by employers.
E. The number of employees hired will rise.

Consider the initial equilibrium in the markets of two commonly purchased products:

T-23 If the government imposes a 50-cent per unit tax on each good, the burden or incidence of the tax
A. will fall more heavily on buyers in the case of cigarettes than in the case of paper towels.
B. will fall more heavily on buyers in the case of paper towels than in the case of cigarettes.
C. will effect buyers in the cigarette market in the same way as those in the paper towel market.
D. will fall entirely upon buyers in both markets.
E. will fall entirely upon sellers in both markets.

T-24 If the government could charge a 50-cent tax on only one of the above goods,
A. it would get the greatest revenue by putting the tax on cigarettes.
B. it would get the greatest revenue by putting the tax on paper towels.
C. the excess burden would be smaller if the tax were put on paper towels.
D. the government would raise the same amount of money regardless of which product it puts the tax on.
E. the excess burden of the tax is the same whether the tax is put on cigarettes or on paper towels.

T-25 Suppose a new snack-food tax is imposed in Arizona. Every candy bar or box of cookies will sold will be charged 25 cents tax, to be paid by the seller to the government. What do you expect will happen to the price of a candy bar as paid by buyers?
A. The price paid by the buyers will rise by more than 25 cents.
B. Since the tax is charged to the sellers, the price paid by the buyers will not change at all.
C. The price paid by the buyers will rise by less than 25 cents.
D. The price paid by the buyers will fall by less than 25 cents
E. The price paid by the buyers will fall by more than 25 cents

T-26 Social security taxes are supposedly split evenly between employees and employers. Actually, employers send 7.65% of each employee's salary or wage to the government (as the employer's contribution), and deduct an additional 7.65% from each employee's salary to also send to the government (as the employee's contribution). Without making any other assumptions, what can you conclude about the tax incidence (burden)?
A. that the burden of Social Security taxes are borne equally by employers and employees
B.that employers bear more than half of the burden of Social Security taxes.
C. that employees bear more than half of the burden of Social Security taxes.
D. there is no excess burden from Social Security taxes, since both buyer and seller must pay them.
E. we need more information before we can determine the incidence of Social Security taxes.

T-27 Social security taxes are supposedly split evenly between employees and employers. Actually, employers send 7.65% of each employee's salary or wage to the government (as the employer's contribution), and deduct an additional 7.65% from each employee's salary to also send to the government (as the employee's contribution). Without making any other assumptions, what can you conclude about the tax incidence (burden)?
A. we need to know the excess burden before we can determine the incidence of Social Security taxes.
B. we can determine the incidence of Social Security taxes from the information given.
C. we need to know the amount of labor purchased (hired) after the tax goes into effect in order to determine the incidence of Social Security taxes.
D.we need to know the price of labor purchased (hired) before the tax goes into effect in order to determine the incidence of Social Security taxes.
E. we need to know the relative slopes of the demand and supply curves before we can determine the incidence of Social Security taxes.

T-28 A new tax is imposed on movie tickets. The tax is paid by movie theaters each week, based on how many tickets are sold. Before the tax, the average price of a first-run movie ticket is $6.00. After the tax is imposed, the price charged to moviegoers rises to $6.25. Movie theaters figure they keep about $5.75 of the $6.25 ticket price after paying the tax. How much is the tax per ticket?
A. $6.25
B. $6.00
C. $5.75
D. $ .50
E. $ .25

T-29 A new tax is imposed on movie tickets. The tax is paid by movie theaters each week, based on how many tickets are sold. Before the tax, the average price of a first-run movie ticket is $6.00. After the tax is imposed, the price charged to moviegoers rises to $6.25. Movie theaters figure they keep about $5.75 of the $6.25 ticket price after paying the tax. Before the tax was levied, each theater sold about 1000 tickets per day. Now (since the tax was imposed), each theater sells about 800 tickets per day. The government collects how much tax revenue through this tax?
A. $500
B. $400
C. $250
D. $6250
E. $6000

T-30 A payroll (salary or wage) tax is unlikely to affect
A. the quantity of labor hired (bought and sold).
B. the quantity of labor demanded.
C. the quantity of labor supplied.
D. the price of products whose production utilizes labor.
E. the demand for labor (as a function of total labor cost).

T-31 According to economic analysis, the corporate income tax
A. is bad.
B. is not a burden to producers.
C. is incidental.
D. is paid by individuals, since buyers and producers are people and they ultimately bear the burden of taxes.
E. is not a burden to consumers.

T-32 If we assume that the demand for and supply of Daffy's Dandy Donuts are described by a typical upward-sloping supply curve and downward sloping demand curve, which of the following is the most likely result of a tax on Daffy's Donuts?
A. Consumers pay more for each donut and Daffy receives a lower price than in equilibrium.
B. Consumers pay less for each donut and Daffy receives a higher price than in equilibrium.
C. Consumers pay the same price and Daffy receives a lower price than in equilibrium.
D. Consumers pay the same price and Daffy receives a higher price than in equilibrium.
E. None of the above can be said.

T-33 The excess burden (deadweight loss) of a tax refers to
A. the loss of private purchasing power due to the revenues transferred to the government.
B. the additional tax that must be levied because some taxpayers engage in tax avoidance.
C. only the part of the tax which is borne by consumers (out of consumer excess or surplus).
D. the burden imposed on taxpayers because taxes distort prices and eliminate some trades.
E. only the part of the tax which is borne by producers (out of producer excess or surplus)..

T-34 If the sellers of a product are taxed, can the sellers simply pass the entire tax on to the buyers of the product?
A. Yes, since the sellers can set whatever price they desire, they can raise price by the entire amount of the tax without affecting sales. However, it is not considered good customer relations.
B. No, the tax laws prohibit such actions on the part of sellers.
C. No, the law of demand prohibits such an action on the part of sellers.
D. No, the amount of tax which can be passed on to buyers is limited by demand and supply.
E. Yes, it is standard business practice to do so.

T-35 The demand curve for cigarettes is relatively steep. Why, then, do you think tobacco companies oppose raising cigarette taxes?
A. Even though the buyers pay all of the taxes, tobacco companies care about their customers.
B. Even though the buyers pay most of the tax, tobacco companies still pay some of it.
C. Even though the buyers pay most of the tax, tobacco companies care about economic efficiency.
D. Tobacco companies don't oppose taxes on cigarettes as much as they want to avoid getting anti-tobacco advertisements made with the money.
E. Tobacco companies don't want to have a large excess burden.

T-36 Assume that luxury yachts are produced by boatwrights who have few other skills. Also, assume that yacht buyers have many sources from which to buy yachts, both in the U.S. and in other countries. What effects would you expect from a tax of $5000 on every US yacht?
A. The tax will reduce the quantity of yachts sold.
B. The tax will drive buyers elsewhere, and put yachtbuilders out of work.
C. Most of the tax will be borne by the sellers in the form of lower take-home price.
D. The excess burden will be quite large, since the demand curve is flat.
E. All of the above.

T-37 Suppose Pat and Chris each earn the same salary and work just as hard (the same number of hours). They work for different employers, doing different kinds of work. Pat's employer would find it difficult to replace Pat, while many other people have the skills to do Chris's job. Chris has little training to do other kinds of work, while Pat has skills suited to many occupations and positions. If new taxes are imposed on all employees, what can you say about the take-home (after-tax) pay of these people?
A. Pat's take-home pay will fall by more than Chris's
B. Chris's take-home pay will fall by more than Pat's.
C. Pat's take-home pay will rise by more than Chris's
D. Chris's take-home pay will rise by more than Pat's.
E. Both Pat and Chris will have the same take-home pay after the tax.

T-38 A tax is imposed on Unicorn Chips, a product with no good substitutes. The product's supply curve is not particularly flat or steep. Based on the kind of demand curve you might expect for such a product, what can you say about who probably pays the tax?
A. Buyers pay most of it.
B. Sellers pay most of it.
C. Buyers and sellers pay equal shares of it.
D. We cannot tell, since knowing about demand doesn't help us.
E. We don't have enough information about demand to answer

T-39. Red Herrings have a steep supply curve, and a relatively flat demand curve. The government wants to impose a $1 tax on each Red Herring sold to pay for the medical problems they cause (the bones get stuck in people's throats). The tax will probably
A. be paid mostly by sellers.
B. be paid mostly by buyers.
C. be paid equally by sellers and buyers.
D. be paid by sellers and buyers in a way we can't determine.

T-40 After a $1 tax is imposed on Red Herrings, the price paid by consumers is likely to be
A. more than $1 higher than before the tax.
B. less than $1 higher than before the tax.
C. exactly $1 higher than before the tax.
D. less than $1 lower than before the tax.
E. more than $1 lower than before the tax.

T-41 After a $1 tax is imposed on Red Herrings, the price received by producers is likely to be
A. more than $1 higher than before the tax.
B. less than $1 higher than before the tax.
C. exactly $1 higher than before the tax.
D. less than $1 lower than before the tax.
E. more than $1 lower than before the tax.

T-42 A tax is imposed on Blistermints, the red-hot-freezing-cold breath mints. The deadweight loss (also known as the "excess burden") of the tax is likely to be largest if
A. Demand is flat and supply is steep.
B. Demand is steep and supply is flat.
C. Supply and demand are both flat.
D. Supply and demand are both steep.
E. Blistermints cause blisters on your tongue.

T-43. Congressman Concussion wants to impose a 25-cent tax on every cassette tape sold, because he thinks loud music warps the minds of American youth. He can't decide whether to impose the tax on the cassette producers, or to make the buyers pay the tax when they purchase the tape. What would you tell him?
A. Buyers pay less of the tax if you charge the tax to producers.
B. Buyers pay less of the tax if you charge them directly when they buy the tape.
C. The deadweight loss is bigger if you charge the tax to buyers.
D. The deadweight loss is bigger if you charge the producers.
E. It makes no difference who you impose the tax upon; the deadweight loss, amount of tax collected, and the burden of who pays the tax will not depend on who you charge.

T-44 The deadweight loss of a tax is
A. collected by the government
B. consumer surplus lost due to the tax
C. producer surplus lost because of the tax
D. the decreases in consumer and producer surpluses combined
E. that portion of the decreases in consumer and producer surpluses that is not collected by the government.

T-45 A tax on an item will raise the price paid by consumers for the good, while reducing the quantity actually sold. From this perspective, the effects of a tax resemble the effects of
A. an increase in demand.
B. a reduction in supply.
C. a reduction in demand.
D. an increase in supply.
E. a reduction in supply and an increase in demand.

T-46 A tax on an item will lower the price that sellers keep when they sell a good and will also lower the quantity actually sold. Thus, from the seller's perspective, the effects of a tax resemble the effects of
A. an increase in demand.
B. a reduction in supply.
C. a reduction in demand.
D. an increase in supply.
E. a reduction in supply and an increase in demand.

T-47 Senator Busybody wants to reduce the consumption of unhealthy food. She sponsors a law that places an excise tax on all fatty meat and snacks. The money raised from the tax is used to pay for advertisements that are intended to lower demand for such food. Which result would indicate that the advertisements have lowered demand for the fatty food?
A.Any reduced consumption of fatty food.
B. Reduced consumption of fatty food that is accompanied by higher prices (at the consumer level) on the food.
C. Reduced consumption of fatty food that is accompanied by lower prices (at the consumer level) on the food.
D. Higher prices for fatty food at the consumer level.
E. Lower prices for fatty food at the consumer level.

T-48 Senator Busybody wants to reduce the consumption of unhealthy food. She sponsors a law that places an excise tax on all fatty meat and snacks. The money raised from the tax is used to pay for advertisements that are intended to lower demand for such food. Which result would you expect from the tax (alone) on the fatty food?
A.Any reduced consumption of fatty food.
B. Reduced consumption of fatty food that is accompanied by higher prices (at the consumer level) on the food.
C. Reduced consumption of fatty food that is accompanied by lower prices (at the consumer level) on the food.
D. Higher prices for fatty food at the consumer level.
E. Lower prices for fatty food at the consumer level.

T-49 The deadweight loss or excess burden of a tax is
A. proportional to the reduction in trade that the tax causes.
B. inversely related to the dollar amount of the tax per unit.
C.inversely related to the reduction in trade that the tax causes.
D. unrelated to the dollar amount of the tax.
E. unrelated to the reduction in trade that the tax causes.

T-50 The deadweight loss or excess burden of a tax is
A. inversely related to the dollar amount of the tax per unit.
B. inversely related to the reduction in trade that the tax causes.
C. unrelated to the dollar amount of the tax.
D. unrelated to the reduction in trade that the tax causes.
E. proportional to the dollar amount of the tax.

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