Q: Which formula correctly calculates the deadweight loss (DWL) from a per-unit tax in a market with linear supply and demand curves?

$$DW L = \frac{Tax \times (\text{Change in Quantity Sold Due to Tax})}{2}$$

Question 1

Which of the following best describes the main reasons governments impose taxes and subsidies?

Accepted Answer

To raise revenue, redistribute income, finance government operations, and correct market failures

Question 2

Suppose the government imposes a per-unit tax of $$2 on producers. If the equilibrium price rises by 1 $$and the equilibrium quantity falls, what can we conclude about the tax incidence?

Accepted Answer

The tax burden is shared equally between consumers and producers

Question 3

If a $3 per-unit subsidy is given to producers in a competitive market, which of the following will occur?

Accepted Answer

There will be overproduction compared to the competitive equilibrium

Question 4

Which formula correctly calculates the deadweight loss (DWL) from a per-unit tax in a market with linear supply and demand curves?

Accepted Answer

$$DW L = \frac{Tax 	imes (	ext{Change in Quantity Sold Due to Tax})}{2}$$

Question 5

In the context of tax incidence, which side of the market bears more of the tax burden?

Accepted Answer

The side with more inelastic supply or demand

Question 6

A 20% ad valorem tax is imposed on producers. What happens to the supply curve?

Accepted Answer

It rotates to the left, becoming steeper

Question 7

Which of the following is true when a per-unit tax is imposed in a competitive market?

Accepted Answer

Total surplus decreases

Question 8

If the government collects more in tax revenue than it spends, what is this situation called?

Accepted Answer

Budget surplus

Question 9

Which type of tax system imposes higher tax rates on those earning higher incomes?

Accepted Answer

Progressive tax system

Question 10

Suppose a per-unit tax is imposed on buyers. What happens to the demand curve?

Accepted Answer

It shifts left by the amount of the tax

Question 11

Which of the following best describes the effect of a per-unit subsidy on total surplus?

Accepted Answer

Total surplus decreases due to the creation of deadweight loss

Question 12

If the supply curve is more elastic than the demand curve, who bears a greater share of a per-unit tax?

Accepted Answer

Consumers

Question 13

Which of the following is NOT a reason for government intervention in markets?

Accepted Answer

To maximize producer surplus only

Question 14

A regressive tax system is best described as:

Accepted Answer

A system where higher incomes are taxed at lower rates

Question 15

Which of the following equations correctly represents the government budget deficit?

Accepted Answer

$$	ext{Budget Deficit} = 	ext{Government Spending} - 	ext{Tax Revenue}$$

Question 16

Which of the following is an example of an excise tax?

Accepted Answer

A tax on gasoline paid per gallon

Question 17

If a per-unit tax is imposed and the demand curve is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Consumers

Question 18

Which of the following statements is true regarding the effect of a per-unit tax on consumer surplus (CS), producer surplus (PS), and deadweight loss (DWL)?

Accepted Answer

CS and PS both decrease, DWL increases

Question 19

Who enjoys a subsidy more in a market?

Accepted Answer

The less elastic side of the market

Government Intervention: Taxes, Subsidies, and Market Outcomes

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