Q: In the context of the oil market with tax, what is the formula for government tax revenue?

$$\text{Tax Revenue} = \text{Tax per unit} \times \text{Quantity sold after tax}$$

Q: In the context of the oil market with tax, what is the formula for deadweight loss (DWL)?

$$\text{DWL} = \frac{1}{2} \times (\text{Quantity before tax} - \text{Quantity after tax}) \times \text{Tax per unit}$$

Question 1

Refer to the first oil market graph. When a per-unit tax is imposed on oil, which curve shifts and in which direction?

Accepted Answer

The supply curve shifts upward (leftward) by the amount of the tax.

Question 2

In the second oil market graph, what is the effect of a tax on the demand curve?

Accepted Answer

The demand curve shifts downward (leftward) by the amount of the tax.

Question 3

Refer to the third oil market graph. If the tax is $3.00 per gallon, what is the vertical distance between the supply and supply-with-tax curves?

Accepted Answer

$3.00

Question 4

In the fourth oil market graph, what does the area labeled 'DWL' represent?

Accepted Answer

Deadweight loss due to the tax

Question 5

In the fifth oil market graph, which area represents the loss in consumer surplus due to the tax?

Accepted Answer

Area B

Question 6

Suppose the government imposes a $$3.00 per gallon tax on oil. If the equilibrium price before tax is 4.00 $$and after tax consumers pay $5.00, how much of the tax is paid by consumers?

Accepted Answer

$1.00

Question 7

Using the Victoria Housing Market graph, what is the effect of a $300,000 subsidy per home on the price consumers pay and the price producers receive?

Accepted Answer

Consumers pay less and producers receive more, with the difference equal to the subsidy.

Question 8

Refer to the Victoria Housing Market graph. If the government provides a $300,000 subsidy, what happens to the equilibrium quantity of homes sold?

Accepted Answer

It increases.

Question 9

In the context of the oil market with tax, what is the formula for government tax revenue?

Accepted Answer

$$	ext{Tax Revenue} = 	ext{Tax per unit} 	imes 	ext{Quantity sold after tax}$$

Question 10

Which area in the Victoria Housing Market 'Government' panel represents the cost of the subsidy to the government?

Accepted Answer

Areas A + B + C + D + E

Question 11

If a tax is imposed in a market, what happens to the deadweight loss (DWL) as the size of the tax increases?

Accepted Answer

DWL increases at an increasing rate.

Question 12

Suppose the demand for oil is perfectly inelastic. Who bears the entire burden of a per-unit tax?

Accepted Answer

Consumers

Question 13

If the supply of oil is perfectly elastic, what happens to the price consumers pay after a per-unit tax is imposed?

Accepted Answer

It increases by the full amount of the tax.

Question 14

In the oil market with tax, what does the area labeled 'Gov' represent in the fourth graph?

Accepted Answer

Government tax revenue

Question 15

In the Victoria Housing Market, what is the effect of a subsidy on total surplus (consumer surplus + producer surplus + government surplus)?

Accepted Answer

Total surplus increases only if the subsidy corrects a market failure; otherwise, it decreases due to deadweight loss.

Question 16

If a $$3.00 tax is imposed and the price consumers pay rises by 2.00$$, what is the price received by producers?

Accepted Answer

$1.00 less than the original equilibrium price

Question 17

Which of the following best describes the incidence of a tax?

Accepted Answer

The division of the tax burden between buyers and sellers

Question 18

In the context of the oil market with tax, what is the formula for deadweight loss (DWL)?

Accepted Answer

$$	ext{DWL} = \frac{1}{2} 	imes (	ext{Quantity before tax} - 	ext{Quantity after tax}) 	imes 	ext{Tax per unit}$$

Question 19

If the government removes a per-unit tax in the oil market, what happens to consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer surplus and producer surplus increase, and deadweight loss decreases.

Taxes and Subsidies in Competitive Markets: Effects on Supply, Demand, and Welfare

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