CLEP Microeconomics chapter practice4 questions

12 Taxes, Tax Incidence, and Deadweight Loss

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

A 6 per-unit tax causes buyers to pay 4 more and sellers to receive $2 less. Who bears the larger economic burden?

Buyers lose 4 per unit while sellers lose 2. The changes add to the $6 wedge, and buyers bear the larger share.
Show answer and explanation

D. Buyers, because their price changes by more

Buyers lose 4 per unit while sellers lose 2. The changes add to the $6 wedge, and buyers bear the larger share.

Question 2

Question 2 of 4

Demand is much less elastic than supply. A per-unit tax will generally be borne mostly by

The less elastic side changes quantity less and has fewer alternatives, so it bears more of the tax burden.
Show answer and explanation

B. buyers

The less elastic side changes quantity less and has fewer alternatives, so it bears more of the tax burden.

Question 3

Question 3 of 4

A $3 tax is collected on each of 800 units sold after the tax. Government revenue is

Revenue equals tax per unit times the after-tax quantity: $3(800)=2,400$.
Show answer and explanation

E. $2,400

Revenue equals tax per unit times the after-tax quantity: $3(800)=2,400$.

Question 4

Question 4 of 4

Which change, other things equal, increases the deadweight loss from a tax?

Greater elasticity produces a larger reduction in mutually beneficial trades for a given wedge, increasing deadweight loss.
Show answer and explanation

C. A more elastic response of quantity to the tax wedge

Greater elasticity produces a larger reduction in mutually beneficial trades for a given wedge, increasing deadweight loss.

Quiz complete