Q: A government imposes a tax of $$T$$ per unit, reducing equilibrium quantity from $$Q^* to$$ $$Q_t. $$What is the formula for deadweight loss (DWL)?

$$DWL = \frac{1}{2} \times T \times (Q^* - Q_t)$$

Q: Which formula correctly calculates government tax revenue from a per-unit tax?

$$\text{Tax Revenue} = T \times Q_t$$

Question 1

Suppose the government imposes a per-unit tax on a good. According to the tax wedge formula, what is the relationship between the price paid by buyers ($$P_b$$), the price received by sellers ($$P_s$$), and the tax ($$T$$)?

Accepted Answer

$$P_b = P_s + T$$

Question 2

Which area on a supply and demand graph represents the deadweight loss (DWL) caused by a per-unit tax?

Accepted Answer

The triangle between $$Q^*$$ and $$Q_t$$ bounded by the supply and demand curves

Question 3

If the demand for a product is highly elastic, what will be the effect of a per-unit tax on deadweight loss?

Accepted Answer

Deadweight loss will be large because quantity drops significantly

Question 4

A government imposes a tax of $$T$$ per unit, reducing equilibrium quantity from $$Q^* to$$ $$Q_t. $$What is the formula for deadweight loss (DWL)?

Accepted Answer

$$DWL = \frac{1}{2} 	imes T 	imes (Q^* - Q_t)$$

Question 5

In the real-world bubble tea example, a 10,000 VND tax caused the trade to be cancelled. What was the permanent social loss?

Accepted Answer

4,000 VND per cup

Question 6

Which of the following best explains why deadweight loss occurs when a tax is imposed?

Accepted Answer

Some mutually beneficial trades between buyers and sellers are prevented

Question 7

If the government doubles the per-unit tax from $$T to$$ $$2T$$, what happens to the deadweight loss?

Accepted Answer

It quadruples

Question 8

Which tax policy would minimize deadweight loss while raising the same amount of revenue?

Accepted Answer

A broad tax base with low rates

Question 9

According to the Laffer Curve, what happens to tax revenue if the tax rate is increased beyond the revenue-maximizing rate ($$T^*$$)?

Accepted Answer

Tax revenue decreases

Question 10

Why is taxing basic groceries considered economically efficient but socially regressive?

Accepted Answer

Because quantity barely drops, minimizing deadweight loss, but low-income families spend a larger share of income on food

Question 11

Suppose the supply of labor is highly inelastic. What is the likely effect of a labor income tax on deadweight loss?

Accepted Answer

Deadweight loss will be small

Question 12

Which of the following is a key insight from the supply-side economics case study of Reagan’s 1980s tax cuts?

Accepted Answer

Tax cuts can sometimes reduce revenue if the tax base shrinks due to avoidance

Question 13

If both supply and demand are highly inelastic, what is the effect of a tax on deadweight loss?

Accepted Answer

Deadweight loss is minimized

Question 14

A government imposes a tax on a good with highly elastic supply and demand. What is the likely outcome?

Accepted Answer

Large drop in quantity and large deadweight loss

Question 15

Which formula correctly calculates government tax revenue from a per-unit tax?

Accepted Answer

$$	ext{Tax Revenue} = T 	imes Q_t$$

Question 16

Why does deadweight loss not represent money collected by the government?

Accepted Answer

It is the value of mutually beneficial trades that never occur due to the tax

Question 17

Which of the following best describes statutory equivalence in taxation?

Accepted Answer

The economic outcome is identical whether the tax is legally levied on buyers or sellers

Question 18

If the government wants to minimize deadweight loss, which type of goods should it tax?

Accepted Answer

Goods with highly inelastic demand and supply

Question 19

What is the main policy recommendation for minimizing deadweight loss according to the Golden Rule of Public Finance?

Accepted Answer

Impose low taxes on a broad base

The Costs of Taxation: Deadweight Loss, Tax Distortion, and the Laffer Curve

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