Question 1

What are the characteristic(s) of an efficient tax system?

Accepted Answer

One tax system is more efficie

Question 2

Athos, Porthos,and Aramis each like to take fencing lessons. The price of a fencing lesson is $11. Athos values a lesson at $16, Porthos at $14, and Aramis at $12. Suppose that if the government taxes fencing lessons at $2 each, the price will rise to $13. A consequence of the tax is that consumer surplus shrinks by

Accepted Answer

A) $4 and tax revenues increase by $6, so there is a deadweight loss of $2. 
B) $6 and tax revenues increase by $6, so there is no deadweight loss. 
C) $5 and tax revenues increase by $6, so there is no deadweight loss. 
D) $5 and tax revenues increase by $4, so there is a deadweight loss of $1. 
A) $4 and tax revenues increase by $6, so there is a deadweight loss of $2. 
B) $6 and tax revenues increase by $6, so there is no deadweight loss. 
C) $5 and tax revenues increase by $6, so there is no deadweight loss. 
D) $5 and tax revenues increase by $4, so there is a deadweight loss of $1.

Question 3

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is

Accepted Answer

A) 25 percent, and the average tax rate is 32.5 percent. 
B) 25 percent, and the average tax rate is 36 percent. 
C) 40 percent, and the average tax rate is 32.5 percent. 
D) 40 percent, and the average tax rate is 36 percent. 
A) 25 percent, and the average tax rate is 32.5 percent. 
B) 25 percent, and the average tax rate is 36 percent. 
C) 40 percent, and the average tax rate is 32.5 percent. 
D) 40 percent, and the average tax rate is 36 percent.

Question 4

Taxes create deadweight loss when they

Accepted Answer

A) distort behavior. 
B) cause the price of the product to increase. 
C) don't raise sufficient government revenue. 
D) cannot be computed easily. 
A) distort behavior. 
B) cause the price of the product to increase. 
C) don't raise sufficient government revenue. 
D) cannot be computed easily.

Question 5

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Accepted Answer

A) True 
 B)False

Question 6

If a poor family has three children in public school and a rich family has two children in private school, the ability-to-pay principle would suggest that

Accepted Answer

A) the poor family should pay more in taxes to pay for public education than the rich family. 
B) the rich family should pay more in taxes to pay for public education than the poor family. 
C) the benefits of private school exceed those of public school. 
D) public schools should be financed by property taxes. 
A) the poor family should pay more in taxes to pay for public education than the rich family. 
B) the rich family should pay more in taxes to pay for public education than the poor family. 
C) the benefits of private school exceed those of public school. 
D) public schools should be financed by property taxes.

Question 7

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Accepted Answer

A) True 
 B)False

Question 8

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Accepted Answer

A) True 
 B)False

Question 9

Table 12-13
The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes.  
-Refer to Table 12-13. In this economy Tax A exhibits

Accepted Answer

A) horizontal and vertical equity. 
B) horizontal equity but not vertical equity. 
C) vertical equity but not horizontal equity. 
D) neither horizontal nor vertical equity. 
A) horizontal and vertical equity. 
B) horizontal equity but not vertical equity. 
C) vertical equity but not horizontal equity. 
D) neither horizontal nor vertical equity.

Question 10

The state government requires all persons to pay 5% of their incomes in income tax.This is an example of:

Accepted Answer

A) ​The benefits principle 
B) ​a proportional tax 
C) ​a regressive tax 
D) ​a progressive tax 
A) ​The benefits principle 
B) ​a proportional tax 
C) ​a regressive tax 
D) ​a progressive tax

Question 11

When the marginal tax rate equals the average tax rate, the tax is

Accepted Answer

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

Question 12

Table 12-19  
-Refer to Table 12-19. The tax system is

Accepted Answer

A) progressive. 
B) regressive. 
C) proportional. 
D) lump sum. 
A) progressive. 
B) regressive. 
C) proportional. 
D) lump sum.

Question 13

In order to construct a more complete picture of the economic burden of government across income classes, economists usually

Accepted Answer

A) include tax payments as well as transfer payments received. 
B) focus only on the tax payments of wealthy tax payers. 
C) limit their analysis to taxes based on the ability-to-pay principle. 
D) focus their analysis on issues of tax efficiency. 
A) include tax payments as well as transfer payments received. 
B) focus only on the tax payments of wealthy tax payers. 
C) limit their analysis to taxes based on the ability-to-pay principle. 
D) focus their analysis on issues of tax efficiency.

Question 14

The ability-to-pay principle claims that a person should pay taxes according to

Accepted Answer

A) the level of public education that the person has received throughout his lifetime. 
B) how many government services that person will receive. 
C) how well that person can shoulder the tax burden. 
D) the level of debt that the person has. 
A) the level of public education that the person has received throughout his lifetime. 
B) how many government services that person will receive. 
C) how well that person can shoulder the tax burden. 
D) the level of debt that the person has.

Question 15

Vertical equity in taxation refers to the idea that people

Accepted Answer

A) in unequal conditions should be treated differently. 
B) in equal conditions should pay equal taxes. 
C) should pay taxes based on the benefits they receive from the government. 
D) should pay a proportional tax rather than a progressive tax. 
A) in unequal conditions should be treated differently. 
B) in equal conditions should pay equal taxes. 
C) should pay taxes based on the benefits they receive from the government. 
D) should pay a proportional tax rather than a progressive tax.

Question 16

Table 12-19  
-Refer to Table 12-19. The tax system is

Accepted Answer

A) progressive. 
B) regressive. 
C) proportional. 
D) lump sum. 
A) progressive. 
B) regressive. 
C) proportional. 
D) lump sum.

Question 17

Lump-sum taxes are rarely used in the real world because

Accepted Answer

A) while lump-sum taxes have low administrative burdens, they have high deadweight losses. 
B) while lump-sum taxes have low deadweight losses, they have high administrative burdens. 
C) lump-sum taxes are often viewed as unfair because they take the same amount of money from both poor and rich. 
D) lump-sum taxes are very inefficient. 
A) while lump-sum taxes have low administrative burdens, they have high deadweight losses. 
B) while lump-sum taxes have low deadweight losses, they have high administrative burdens. 
C) lump-sum taxes are often viewed as unfair because they take the same amount of money from both poor and rich. 
D) lump-sum taxes are very inefficient.

Question 18

The largest category of federal spending is national defense.

Accepted Answer

A) True 
 B)False

Question 19

The deadweight loss of a tax is

Accepted Answer

A) the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government. 
B) the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits. 
C) the loss in tax revenues. 
D) Both a and b are correct. 
A) the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government. 
B) the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits. 
C) the loss in tax revenues. 
D) Both a and b are correct.

Question 20

Table 12-4  
-Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?

Accepted Answer

A) 30% 
B) 40% 
C) 50% 
D) 60% 
A) 30% 
B) 40% 
C) 50% 
D) 60%

Exam 12: The Design of the Tax System

What are the characteristic(s) of an efficient tax system?

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is

Taxes create deadweight loss when they

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

If a poor family has three children in public school and a rich family has two children in private school, the ability-to-pay principle would suggest that

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Table 12-13 The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. -Refer to Table 12-13. In this economy Tax A exhibits

The state government requires all persons to pay 5% of their incomes in income tax.This is an example of:

When the marginal tax rate equals the average tax rate, the tax is

Table 12-19 -Refer to Table 12-19. The tax system is

In order to construct a more complete picture of the economic burden of government across income classes, economists usually

The ability-to-pay principle claims that a person should pay taxes according to

Vertical equity in taxation refers to the idea that people

Table 12-19 -Refer to Table 12-19. The tax system is

Lump-sum taxes are rarely used in the real world because

The largest category of federal spending is national defense.

The deadweight loss of a tax is

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

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