Question 1

In order to determine tax incidence, one must

Accepted Answer

A) consider issues of equity. 
B) also determine the legal liability of the tax. 
C) evaluate where the tax burden eventually falls. 
D) use the "flypaper theory" of taxation. 
A) consider issues of equity. 
B) also determine the legal liability of the tax. 
C) evaluate where the tax burden eventually falls. 
D) use the "flypaper theory" of taxation.

Question 2

Wilma values a decorative garden rock at $15, while Fred values it at $10. The price of a decorative garden rock is $9. If the government imposes a $2 tax per decorative garden rock and the price of the rock rises to $11, what part of the deadweight loss comes from Wilma, and what part comes from Fred?

Accepted Answer

A) none comes from Wilma; $1 comes from Fred 
B) none comes from Wilma; $3 comes from Fred 
C) $2 comes from Wilma; $1 comes from Fred 
D) $4 comes from Wilma; $3 comes from Fred 
A) none comes from Wilma; $1 comes from Fred 
B) none comes from Wilma; $3 comes from Fred 
C) $2 comes from Wilma; $1 comes from Fred 
D) $4 comes from Wilma; $3 comes from Fred

Question 3

Vertical equity states that taxpayers with a greater ability to pay taxes should

Accepted Answer

A) contribute a decreasing proportion of each increment in income to taxes. 
B) contribute a larger amount than those with a lesser ability to pay. 
C) be less subject to administrative burdens of a tax. 
D) be less subject to tax distortions that lead to deadweight losses. 
A) contribute a decreasing proportion of each increment in income to taxes. 
B) contribute a larger amount than those with a lesser ability to pay. 
C) be less subject to administrative burdens of a tax. 
D) be less subject to tax distortions that lead to deadweight losses.

Question 4

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?

Accepted Answer

A) Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax. 
B) There are no deadweight losses as long as some people still choose to purchase large boats. 
C) In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus. 
D) Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax. 
A) Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax. 
B) There are no deadweight losses as long as some people still choose to purchase large boats. 
C) In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus. 
D) Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.

Question 5

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Accepted Answer

A) is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy. 
B) entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C) violates the benefits principle of taxation. 
D) may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts. 
A) is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy. 
B) entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C) violates the benefits principle of taxation. 
D) may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.

Question 6

Table 12-25  
-Refer to Table 12-25. Which plan illustrates a proportional tax?

Accepted Answer

Plan B illustrates a proportio

Question 7

Which of the following statements is correct?

Accepted Answer

A) A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers. 
B) A general sales tax on food is regressive when middle income taxpayers spend a smaller proportion of their income on food than high-income taxpayers. 
C) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than middle income taxpayers. 
D) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than low-income taxpayers. 
A) A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers. 
B) A general sales tax on food is regressive when middle income taxpayers spend a smaller proportion of their income on food than high-income taxpayers. 
C) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than middle income taxpayers. 
D) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than low-income taxpayers.

Question 8

​Which of the following is an example of a tax based on the benefits principle?

Accepted Answer

A) ​An income tax 
B) ​A lump-sum tax assessed on household in town to finance the construction of soccer fields 
C) ​A gasoline tax imposed by a city to be used to upgrade facilities local high school 
D) ​A toll road 
A) ​An income tax 
B) ​A lump-sum tax assessed on household in town to finance the construction of soccer fields 
C) ​A gasoline tax imposed by a city to be used to upgrade facilities local high school 
D) ​A toll road

Question 9

If a tax takes a constant fraction of income as income rises, it is

Accepted Answer

A) regressive. 
B) proportional. 
C) progressive. 
D) based on the ability-to-pay principle. 
A) regressive. 
B) proportional. 
C) progressive. 
D) based on the ability-to-pay principle.

Question 10

Who pays a corporate income tax?

Accepted Answer

A) owners of the corporation 
B) customers of the corporation 
C) workers of the corporation 
D) All of the above are correct. 
A) owners of the corporation 
B) customers of the corporation 
C) workers of the corporation 
D) All of the above are correct.

Question 11

In designing a tax system, policymakers have two objectives that are often conflicting. They are

Accepted Answer

A) maximizing revenue and minimizing costs to taxpayers. 
B) efficiency and minimizing costs to taxpayers. 
C) efficiency and equity. 
D) maximizing revenue and reducing the national debt. 
A) maximizing revenue and minimizing costs to taxpayers. 
B) efficiency and minimizing costs to taxpayers. 
C) efficiency and equity. 
D) maximizing revenue and reducing the national debt.

Question 12

Which of the following statements is correct?

Accepted Answer

A) A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers. 
B) A general sales tax on food is regressive when middle income taxpayers spend a smaller proportion of their income on food than high-income taxpayers. 
C) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than middle income taxpayers. 
D) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than low-income taxpayers. 
A) A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers. 
B) A general sales tax on food is regressive when middle income taxpayers spend a smaller proportion of their income on food than high-income taxpayers. 
C) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than middle income taxpayers. 
D) A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than low-income taxpayers.

Question 13

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Accepted Answer

A) 0% 
B) 10% 
C) More than 10% 
D) The marginal tax rate cannot be determined without knowing the entire tax schedule. 
A) 0% 
B) 10% 
C) More than 10% 
D) The marginal tax rate cannot be determined without knowing the entire tax schedule.

Question 14

Scenario 12-2
Suppose that Bob places a value of $10 on a movie ticket and that Lisa places a value of $7 on a movie ticket. In addition, suppose the price of a movie ticket is $5.
-Refer to Scenario 12-2. Suppose the government levies a tax of $1 on a movie ticket and that, as a result, the price of a movie ticket increases to $6. If Bob and Lisa both purchase a movie ticket, what is the deadweight loss from the tax?

Accepted Answer

A) $0 
B) $1 
C) $2 
D) $3 
A) $0 
B) $1 
C) $2 
D) $3

Question 15

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Accepted Answer

Some economists believe that t

Question 16

A lump-sum tax would take different amounts from the poor and the rich.

Accepted Answer

A) True 
 B)False

Question 17

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Accepted Answer

Horizontal equity is the idea that taxpa

Question 18

Table 12-15  
-Refer to Table 12-15. In this tax system which of the following is possible?

Accepted Answer

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

Question 19

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Accepted Answer

A) an application of the benefits principle of taxation. 
B) a violation of horizontal equity. 
C) a violation of vertical equity. 
D) an application of egalitarian tax rules. 
A) an application of the benefits principle of taxation. 
B) a violation of horizontal equity. 
C) a violation of vertical equity. 
D) an application of egalitarian tax rules.

Question 20

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

Accepted Answer

A) 6.1 percent 
B) 44 percent 
C) 55 percent 
D) 61 percent 
A) 6.1 percent 
B) 44 percent 
C) 55 percent 
D) 61 percent

In order to determine tax incidence, one must

Vertical equity states that taxpayers with a greater ability to pay taxes should

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Table 12-25 -Refer to Table 12-25. Which plan illustrates a proportional tax?

Which of the following statements is correct?

Which of the following is an example of a tax based on the benefits principle?

If a tax takes a constant fraction of income as income rises, it is

Who pays a corporate income tax?

In designing a tax system, policymakers have two objectives that are often conflicting. They are

Which of the following statements is correct?

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

A lump-sum tax would take different amounts from the poor and the rich.

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Table 12-15 -Refer to Table 12-15. In this tax system which of the following is possible?

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

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

Filters

Exam 12: The Design of the Tax System

In order to determine tax incidence, one must

Vertical equity states that taxpayers with a greater ability to pay taxes should

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Table 12-25 -Refer to Table 12-25. Which plan illustrates a proportional tax?

Which of the following statements is correct?

​Which of the following is an example of a tax based on the benefits principle?

If a tax takes a constant fraction of income as income rises, it is

Who pays a corporate income tax?

In designing a tax system, policymakers have two objectives that are often conflicting. They are

Which of the following statements is correct?

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

A lump-sum tax would take different amounts from the poor and the rich.

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Table 12-15 -Refer to Table 12-15. In this tax system which of the following is possible?

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

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

Filters

Which of the following is an example of a tax based on the benefits principle?