CH8 Taxation and Deadweight Loss

What does it mean if demand is elastic?

• It is highly sensitive to price changes
• It is insensitive to price changes
• It means the good is greatly needed
• It indicates few alternatives exist

What characterizes inelastic demand?

• Insensitivity to price changes
• High sensitivity to price changes
• Many alternatives
• Not greatly needed

What is unit elasticity?

• A balanced sensitivity where % change in quantity equals % change in price
• Zero change in quantity regardless of price
• A doubling of price results in more than double quantity change
• A complete lack of alternatives

What is deadweight loss?

• Loss of total surplus due to prevented trades
• Revenue the government collects from taxes
• The gap between supply and demand
• The surplus retained by producers

When is deadweight loss larger?

• When supply and demand are more elastic
• When taxes are small
• When both curves are steep
• When the tax is removed

What is the shape of a curve when elasticity is high?

• Flatter
• Steeper
• Vertical
• Circular

How does tax revenue change with very high taxes?

• It eventually decreases
• It grows exponentially
• It levels out
• It stays the same

What is the Laffer curve?

• The relationship between tax size and revenue
• A curve showing supply elasticity
• A diagram of market demand
• The arc of marginal cost

Who bears more tax burden?

• The more inelastic party
• The more elastic party
• Consumers only
• Producers only

A tax on a good has a deadweight loss if:

• The reduction in consumer and producer surplus is greater than the tax revenue
• The tax revenue is greater than the reduction in consumer and producer surplus
• The reduction in consumer surplus is greater than the reduction in producer surplus
• The reduction in producer surplus is greater than the reduction in consumer surplus