Question 1

Explain what the differences are behind a progressive, a regressive and a proportional tax income system.

Accepted Answer

A progressive income tax system would re

Question 2

A tax on expensive speedboats that are purchased only by the wealthy is not likely to satisfy the condition of vertical equity on the basis that:

Accepted Answer

A) wealthy buyers are most likely to be subject to the implications of the flypaper theory of tax incidence 
B) horizontal equity is most associated with a tax on luxury items 
C) buyers can easily substitute other luxuries for expensive speedboats 
D) it is very unlikely that the burden of the tax will fall on workers who make the expensive speedboats 
A) wealthy buyers are most likely to be subject to the implications of the flypaper theory of tax incidence 
B) horizontal equity is most associated with a tax on luxury items 
C) buyers can easily substitute other luxuries for expensive speedboats 
D) it is very unlikely that the burden of the tax will fall on workers who make the expensive speedboats

Question 3

A progressive tax system is one which satisfies the principle of:

Accepted Answer

A) vertical equity 
B) administrative efficiency 
C) elimination of poverty 
D) reduction in tax evasion 
A) vertical equity 
B) administrative efficiency 
C) elimination of poverty 
D) reduction in tax evasion

Question 4

Which of the following factors will influence the size of the deadweight loss from the individual income tax?
(i) on average, people will choose to not work as hard as they would if income was not taxed
(ii) on average, people will choose to save less and consume more
(iii) on average, people will choose to reduce their leisure time

Accepted Answer

A) (i), (ii) and (iii) 
B) (i) and (ii) only 
C) (i) and (iii) only 
D) (ii) and (iii) only 
A) (i), (ii) and (iii) 
B) (i) and (ii) only 
C) (i) and (iii) only 
D) (ii) and (iii) only

Question 5

Which of the following statements regarding the company income tax is most correct?

Accepted Answer

A) equity considerations are more easily satisfied than efficiency considerations when company income is taxed 
B) the company income tax does not distort the incentives of customers 
C) the company income tax is the best example of why the flypaper theory of tax incidence is correct 
D) many economists believe that workers and customers bear much of the burden of the company income tax 
A) equity considerations are more easily satisfied than efficiency considerations when company income is taxed 
B) the company income tax does not distort the incentives of customers 
C) the company income tax is the best example of why the flypaper theory of tax incidence is correct 
D) many economists believe that workers and customers bear much of the burden of the company income tax

Question 6

According to the information provided, if a tax of $4 is levied on each bottle of micro-brewed beer, what is the total deadweight loss of the tax?

Accepted Answer

A) $13 
B) $9 
C) $6 
D) $3 
A) $13 
B) $9 
C) $6 
D) $3

Question 7

A 'tax liability' refers to:

Accepted Answer

A) the fine incurred when a taxpayer is caught evading tax 
B) the amount of tax a taxpayer owes at the end of the financial year 
C) the taxpayer who is liable to pay the tax 
D) the fine incurred when a taxpayer is caught avoiding tax 
A) the fine incurred when a taxpayer is caught evading tax 
B) the amount of tax a taxpayer owes at the end of the financial year 
C) the taxpayer who is liable to pay the tax 
D) the fine incurred when a taxpayer is caught avoiding tax

Question 8

Which of the following is a tax system in which higher income taxpayers pay a higher percentage of their income in taxes?

Accepted Answer

A) a progressive tax system 
B) a proportional tax system 
C) a regressive tax system 
D) none of the above 
A) a progressive tax system 
B) a proportional tax system 
C) a regressive tax system 
D) none of the above

Question 9

In the absence of taxes, Jane would prefer to purchase a large four-wheel drive (4WD).However, the government has recently decided to place a $10 000 nuisance tax on 4WDs.Which of the following statements best reflects the effect of this tax if Jane decides to purchase a small economy car as a result of the tax?

Accepted Answer

A) other people who choose to purchase 4WDs 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 4WDs 
C) all deadweight losses are mitigated if there is a net decrease in air pollution 
D) Jane is worse off, and her loss of welfare is part of the deadweight loss of the tax 
A) other people who choose to purchase 4WDs 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 4WDs 
C) all deadweight losses are mitigated if there is a net decrease in air pollution 
D) Jane is worse off, and her loss of welfare is part of the deadweight loss of the tax

Question 10

Amy's marginal tax rate was 18 per cent last year.This means the amount she paid on the last dollar she earned in that year was:

Accepted Answer

A) more than $0.18 
B) exactly $0.18 
C) more than 18 per cent 
D) less than $0.18 
A) more than $0.18 
B) exactly $0.18 
C) more than 18 per cent 
D) less than $0.18

Question 11

One argument against the GST is:

Accepted Answer

A) that it allows the government to choose what people should and shouldn't buy 
B) that poor people spend a higher proportion of their income on food, so it will affect them disproportionately 
C) that rich people spend a higher proportion of their money overseas, so it won't affect them enough 
D) that it is too regressive in nature 
A) that it allows the government to choose what people should and shouldn't buy 
B) that poor people spend a higher proportion of their income on food, so it will affect them disproportionately 
C) that rich people spend a higher proportion of their money overseas, so it won't affect them enough 
D) that it is too regressive in nature

Question 12

Income tax is a good example of a lump-sum tax.

Accepted Answer

A) True 
 B)False

Question 13

According to the information provided, how much consumer surplus does Celia receive from consuming her 12-litre bottle of micro-brewed beer?

Accepted Answer

A) $13 
B) $9 
C) $6 
D) $3 
A) $13 
B) $9 
C) $6 
D) $3

Question 14

High marginal tax rates:

Accepted Answer

A) are used to encourage saving behaviour 
B) distort incentives to work 
C) will invariably lead to lower average tax rates 
D) are not associated with deadweight losses 
A) are used to encourage saving behaviour 
B) distort incentives to work 
C) will invariably lead to lower average tax rates 
D) are not associated with deadweight losses

Question 15

The average tax rate measures the:

Accepted Answer

A) fraction of spending paid in taxes 
B) fraction of income paid in taxes 
C) incremental rate of tax on income 
D) average deadweight loss from all taxes 
A) fraction of spending paid in taxes 
B) fraction of income paid in taxes 
C) incremental rate of tax on income 
D) average deadweight loss from all taxes

Question 16

A budget deficit is when a government owes money to overseas investors.

Accepted Answer

A) True 
 B)False

Question 17

Ambiguities or omission in the tax laws generate tax loopholes.

Accepted Answer

A) True 
 B)False

Question 18

According to the information provided, the amount of surplus value that accrues to Dean, Jess, Brent and Frida from their day surfing is:

Accepted Answer

A) $250 
B) $126 
C) $124 
D) $146 
A) $250 
B) $126 
C) $124 
D) $146

Question 19

According to the information provided, how much consumer surplus accrues to Frida and Brent individually?

Accepted Answer

A) $64 and $93, respectively 
B) $85 and $39, respectively 
C) $46 and $35, respectively 
D) $64 and $39, respectively 
A) $64 and $93, respectively 
B) $85 and $39, respectively 
C) $46 and $35, respectively 
D) $64 and $39, respectively

Question 20

Taxes on the wealthy that are used exclusively for anti-poverty programs may be justified on the benefits principle if:

Accepted Answer

A) the wealthy place a greater dollar value on anti-poverty programs than other classes of taxpayers 
B) anti-poverty programs can be considered public goods 
C) wealthy taxpayers received some personal benefit from anti-poverty programs 
D) all of the above are true 
A) the wealthy place a greater dollar value on anti-poverty programs than other classes of taxpayers 
B) anti-poverty programs can be considered public goods 
C) wealthy taxpayers received some personal benefit from anti-poverty programs 
D) all of the above are true

Exam 12: The Design of the Tax System

Explain what the differences are behind a progressive, a regressive and a proportional tax income system.

A tax on expensive speedboats that are purchased only by the wealthy is not likely to satisfy the condition of vertical equity on the basis that:

A progressive tax system is one which satisfies the principle of:

Which of the following statements regarding the company income tax is most correct?

According to the information provided, if a tax of $4 is levied on each bottle of micro-brewed beer, what is the total deadweight loss of the tax?

A 'tax liability' refers to:

Which of the following is a tax system in which higher income taxpayers pay a higher percentage of their income in taxes?

Amy's marginal tax rate was 18 per cent last year.This means the amount she paid on the last dollar she earned in that year was:

One argument against the GST is:

Income tax is a good example of a lump-sum tax.

According to the information provided, how much consumer surplus does Celia receive from consuming her 12-litre bottle of micro-brewed beer?

High marginal tax rates:

The average tax rate measures the:

A budget deficit is when a government owes money to overseas investors.

Ambiguities or omission in the tax laws generate tax loopholes.

According to the information provided, the amount of surplus value that accrues to Dean, Jess, Brent and Frida from their day surfing is:

According to the information provided, how much consumer surplus accrues to Frida and Brent individually?

Taxes on the wealthy that are used exclusively for anti-poverty programs may be justified on the benefits principle if:

Ten Lessons From 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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