Question 1

An analysis of the effect of excise taxes on markets allows us to conclude that:

Accepted Answer

A) when the price elasticity of supply is equal to zero,an excise tax falls entirely on the consumers. 
B) when the price elasticity of demand is lower than the price elasticity of supply,an excise tax falls mainly on the producers. 
C) whether the tax is levied on consumers or producers,the quantity sold will be the same. 
D) when the price elasticity of demand is higher than the price elasticity of supply,an excise tax falls mainly on the consumers. 
A) when the price elasticity of supply is equal to zero,an excise tax falls entirely on the consumers. 
B) when the price elasticity of demand is lower than the price elasticity of supply,an excise tax falls mainly on the producers. 
C) whether the tax is levied on consumers or producers,the quantity sold will be the same. 
D) when the price elasticity of demand is higher than the price elasticity of supply,an excise tax falls mainly on the consumers.

Question 2

Economic policies often involve trade-offs between efficiency and equity.Fortunately,tax policy is an exception because it is easy to find taxes that are both efficient and fair.

Accepted Answer

A) True 
 B)False

Question 3

If the government wants to minimize the deadweight loss from taxes,it should tax goods for which the:

Accepted Answer

A) price elasticity of demand is high. 
B) price elasticity of demand is low. 
C) price elasticity of supply is high. 
D) demand is high. 
A) price elasticity of demand is high. 
B) price elasticity of demand is low. 
C) price elasticity of supply is high. 
D) demand is high.

Question 4

Use the following to answer question:  
-(Table: Taxes,Spending,and Income)Use Table: Taxes,Spending,and Income.Suppose Governor Meridias decides to initiate a state tax of 5% on all sales.This tax will be:

Accepted Answer

A) progressive. 
B) proportional. 
C) regressive. 
D) structural. 
A) progressive. 
B) proportional. 
C) regressive. 
D) structural.

Question 5

The FICA tax falls most heavily on workers because the price elasticity of demand for labor is greater than the price elasticity of supply of labor.

Accepted Answer

A) True 
 B)False

Question 6

If the elasticity of demand is _____ and the elasticity of supply is _____,tax revenue is likely to increase if the tax rate is increased.

Accepted Answer

A) 3.3;2.1 
B) 3.3;0.5 
C) 0.2;2.1 
D) 0.2;0.5 
A) 3.3;2.1 
B) 3.3;0.5 
C) 0.2;2.1 
D) 0.2;0.5

Question 7

The _____ rate on income represents the additional tax an individual pays if his or her income goes up by $1.This rate has _____ since 2000.

Accepted Answer

A) tax;increased 
B) marginal tax;decreased 
C) marginal tax;increased 
D) tax;decreased 
A) tax;increased 
B) marginal tax;decreased 
C) marginal tax;increased 
D) tax;decreased

Question 8

Use the following to answer question:  
-(Table: The Market for Fried Twinkies)Use Table: The Market for Fried Twinkies.As a result of the $0.30 tax per fried Twinkie,the government will receive total tax revenue of:

Accepted Answer

A) $500. 
B) $1,000. 
C) $1,500. 
D) The total is impossible to calculate. 
A) $500. 
B) $1,000. 
C) $1,500. 
D) The total is impossible to calculate.

Question 9

Use the following to answer question:  
-(Table: Taxes,Spending,and Income)Use Table: Taxes,Spending,and Income.Suppose Governor Meridias decides to initiate a state tax of 5% on all sales.A poor household will spend _____% of its annual income on the sales tax,while a wealthy household will spend _____% of its annual income.

Accepted Answer

A) 4.5;4 
B) 5;5 
C) 5;3.5 
D) 3.5;4.5 
A) 4.5;4 
B) 5;5 
C) 5;3.5 
D) 3.5;4.5

Question 10

A _____ tax takes a larger share of the income of high-income taxpayers than of low-income taxpayers.

Accepted Answer

A) sales 
B) regressive 
C) progressive 
D) flat 
A) sales 
B) regressive 
C) progressive 
D) flat

Question 11

Suppose Governor Meridias decides to initiate a state income tax.The first $50,000 of household income is tax-free,while any income above $50,000 is taxed at 10%.The marginal tax rate for a household earning $75,000 is:

Accepted Answer

A) greater than its average tax rate. 
B) less than its average tax rate. 
C) equal to its average tax rate. 
D) 3.3%. 
A) greater than its average tax rate. 
B) less than its average tax rate. 
C) equal to its average tax rate. 
D) 3.3%.

Question 12

The government imposes a tax of $1,000 per household to fund a new public swimming pool.This tax is:

Accepted Answer

A) regressive. 
B) proportional. 
C) progressive. 
D) flat. 
A) regressive. 
B) proportional. 
C) progressive. 
D) flat.

Question 13

Lump-sum taxes promote economic efficiency but violate the ability-to-pay principle.

Accepted Answer

A) True 
 B)False

Question 14

Producers in a particular market will bear the greater burden of an excise tax:

Accepted Answer

A) the more price-elastic the demand is relative to supply. 
B) the less price-elastic demand is relative to supply. 
C) if demand has the same price elasticity as supply. 
D) regardless of the price elasticity of demand or supply. 
A) the more price-elastic the demand is relative to supply. 
B) the less price-elastic demand is relative to supply. 
C) if demand has the same price elasticity as supply. 
D) regardless of the price elasticity of demand or supply.

Question 15

Use the following to answer question:  
-(Figure: Tax Incidence)Use Figure: Tax Incidence.All other things unchanged,when a good or service is characterized by a relatively inelastic demand,as shown in panel _____,the greater share of the burden of an excise tax on it is borne by _____.

Accepted Answer

A) C;buyers 
B) C;sellers 
C) D;sellers 
D) D;buyers 
A) C;buyers 
B) C;sellers 
C) D;sellers 
D) D;buyers

Question 16

By law,FICA (the Federal Insurance Contributions Act),a payroll tax,is collected equally from employers and employees.In reality:

Accepted Answer

A) the law works since the employers and the employees each bear half of the burden of the tax. 
B) the employees bear almost all of the burden of the tax. 
C) the employers bear almost all of the burden of the tax. 
D) it's impossible to determine who bears the burden of the tax. 
A) the law works since the employers and the employees each bear half of the burden of the tax. 
B) the employees bear almost all of the burden of the tax. 
C) the employers bear almost all of the burden of the tax. 
D) it's impossible to determine who bears the burden of the tax.

Question 17

State governments levy excise taxes on alcohol because:

Accepted Answer

A) they want to subsidize alcohol production. 
B) they want to encourage individuals to produce their own alcohol. 
C) it discourages drinking alcohol while raising revenue for the government. 
D) it is politically popular with religious groups. 
A) they want to subsidize alcohol production. 
B) they want to encourage individuals to produce their own alcohol. 
C) it discourages drinking alcohol while raising revenue for the government. 
D) it is politically popular with religious groups.

Question 18

The demand for food is very inelastic compared to the supply of food,so if a tax is imposed on the consumers of food,the tax incidence:

Accepted Answer

A) is typically on consumers more than producers. 
B) is typically on producers more than consumers. 
C) is typically split equally between consumers and producers. 
D) cannot be determined without more information. 
A) is typically on consumers more than producers. 
B) is typically on producers more than consumers. 
C) is typically split equally between consumers and producers. 
D) cannot be determined without more information.

Question 19

Use the following to answer question:  
-(Figure: Tax Incidence)Use Figure: Tax Incidence.Producers are likely to bear more of the burden of an excise tax in the situations illustrated by panels:

Accepted Answer

A) A and B. 
B) A and C. 
C) B and D. 
D) B and C. 
A) A and B. 
B) A and C. 
C) B and D. 
D) B and C.

Question 20

Suppose the government imposes a $4 per month excise tax on cable TV.If the demand for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly elastic),then the price of cable TV will:

Accepted Answer

A) increase by more than $4. 
B) increase by exactly $4. 
C) increase by less than $4. 
D) remain constant. 
A) increase by more than $4. 
B) increase by exactly $4. 
C) increase by less than $4. 
D) remain constant.

Exam 7: Taxes

An analysis of the effect of excise taxes on markets allows us to conclude that:

Economic policies often involve trade-offs between efficiency and equity.Fortunately,tax policy is an exception because it is easy to find taxes that are both efficient and fair.

If the government wants to minimize the deadweight loss from taxes,it should tax goods for which the:

Use the following to answer question: -(Table: Taxes,Spending,and Income)Use Table: Taxes,Spending,and Income.Suppose Governor Meridias decides to initiate a state tax of 5% on all sales.This tax will be:

The FICA tax falls most heavily on workers because the price elasticity of demand for labor is greater than the price elasticity of supply of labor.

If the elasticity of demand is _____ and the elasticity of supply is _____,tax revenue is likely to increase if the tax rate is increased.

The _____ rate on income represents the additional tax an individual pays if his or her income goes up by $1.This rate has _____ since 2000.

Use the following to answer question: -(Table: The Market for Fried Twinkies)Use Table: The Market for Fried Twinkies.As a result of the $0.30 tax per fried Twinkie,the government will receive total tax revenue of:

A _____ tax takes a larger share of the income of high-income taxpayers than of low-income taxpayers.

Suppose Governor Meridias decides to initiate a state income tax.The first $50,000 of household income is tax-free,while any income above $50,000 is taxed at 10%.The marginal tax rate for a household earning $75,000 is:

The government imposes a tax of $1,000 per household to fund a new public swimming pool.This tax is:

Lump-sum taxes promote economic efficiency but violate the ability-to-pay principle.

Producers in a particular market will bear the greater burden of an excise tax:

Use the following to answer question: -(Figure: Tax Incidence)Use Figure: Tax Incidence.All other things unchanged,when a good or service is characterized by a relatively inelastic demand,as shown in panel _____,the greater share of the burden of an excise tax on it is borne by _____.

By law,FICA (the Federal Insurance Contributions Act),a payroll tax,is collected equally from employers and employees.In reality:

State governments levy excise taxes on alcohol because:

The demand for food is very inelastic compared to the supply of food,so if a tax is imposed on the consumers of food,the tax incidence:

Use the following to answer question: -(Figure: Tax Incidence)Use Figure: Tax Incidence.Producers are likely to bear more of the burden of an excise tax in the situations illustrated by panels:

Suppose the government imposes a $4 per month excise tax on cable TV.If the demand for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly elastic),then the price of cable TV will:

First Principles

Economic Models: Trade-Offs and Trade

Consumer and Producer Surplus

Supply and Demand

Price Controls and Quotas: Meddling With Markets

Elasticity

International Trade

Decision Making by Individuals and Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods and Common Resources

The Economics of the Welfare State

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Graphs in Economics

Consumer Preferences and Consumer Choice

Filters

If the elasticity of demand is _ and the elasticity of supply is _,tax revenue is likely to increase if the tax rate is increased.

The _ rate on income represents the additional tax an individual pays if his or her income goes up by $1.This rate has _ since 2000.

Use the following to answer question: -(Figure: Tax Incidence)Use Figure: Tax Incidence.All other things unchanged,when a good or service is characterized by a relatively inelastic demand,as shown in panel _,the greater share of the burden of an excise tax on it is borne by _.