Econ 202 - Study Guide Chapter 8
The reduction in total surplus that results from a tax
Deadweight Loss
A graph showing the relationship between the size of a tax and the tax
revenue collected
Laffer Curve
The difference between what the buyer pays and the seller receives when a
tax is place in a market
Tax Wedge
True or False: In general, a tax raises the price buyers pay, lowers the price
the sellers receive, and reduces the quantity sold
True
True or False: If a tax is place on a good and it reduces the quantity sold,
there me be a deadweight loss from the tax
True
True or False: Deadweight loss in the reduction in consumer surplus that
results from a tax
False
True or False: When a tax is place on a good, the revenue the govt. collects is
exactly equal to the loss of consumer and producer surplus from the tax
False
True or False: If John values having his hair cut at $20 and Mary's cost of
providing the haircut is $10, any tax on haircuts larger than $10 will eliminate
the gains from trade and cause a $20 loss of total surplus.
, False
True or False: If a tax is place on a good in a market where supply is perfectly
inelastic, there is no deadweight loss and the sellers bear the entire burden of
the tax
True
True or False: A tax on cigarettes would likely generate a larger deadweight
loss than a tax on luxury boats
False
True or False: A tax will generate a greater deadweight loss if supply and
demand are both inelastic
False
True or False: A tax causes a deadweight loss because it eliminates some of
the potential gains from trade
True
True or False: A larger tax always generated more tax revenue
False
True or False: A larger tax always generates a larger deadweight loss
True
True or False: If an income tax rate is high enough, a reduction in the tax rate
could increase tax revenue
True
True or False: A tax collected from buyers generated a smaller deadweight
loss than a tax collected from sellers
False
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