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The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.

A) True
B) False

Correct Answer

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Because taxes distort incentives, they cause markets to allocate resources inefficiently.

A) True
B) False

Correct Answer

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If the labor supply curve is very elastic, a tax on labor


A) has a large deadweight loss.
B) raises enough tax revenue to offset the loss in welfare.
C) has a relatively small impact on the number of hours that workers choose to work.
D) results in a large tax burden on the firms that hire labor.

E) B) and D)
F) B) and C)

Correct Answer

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