Question 1

After a tax is imposed some people change their behaviour.These changes cause a deadweight loss to be generated.

Accepted Answer

A) True 
 B)False

Question 2

Tax evasion is:

Accepted Answer

A) facilitated by legal deductions to taxable income 
B) the same as tax avoidance 
C) recommended by the Australian Accounting Standards Board 
D) illegal 
A) facilitated by legal deductions to taxable income 
B) the same as tax avoidance 
C) recommended by the Australian Accounting Standards Board 
D) illegal

Question 3

While debate over tax policy is complex, economists do have an important role to play.This role is best defined as:

Accepted Answer

A) arguing for policies that clearly lead to efficiency gains in the economy 
B) shedding light on the trade-off between efficiency and equity in tax policy 
C) articulating the importance of equity as the most important goal of tax policy 
D) demonstrating that there are no trade-offs in tax policy; both efficiency and equity can be attained if the tax policy follows basic economic reasoning 
A) arguing for policies that clearly lead to efficiency gains in the economy 
B) shedding light on the trade-off between efficiency and equity in tax policy 
C) articulating the importance of equity as the most important goal of tax policy 
D) demonstrating that there are no trade-offs in tax policy; both efficiency and equity can be attained if the tax policy follows basic economic reasoning

Question 4

According to the information provided, how much total consumer surplus do Celia and Jim collectively receive from consuming micro-brewed beer when it is priced at $3 a bottle?

Accepted Answer

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

Question 5

Which of the following is a tax system in which higher income taxpayers have lower tax rates, even though they pay a larger amount of tax than lower income taxpayers?

Accepted Answer

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

Question 6

If the government were to impose a tax that assigned everyone the same tax liability, it would be:

Accepted Answer

A) a lump-sum tax 
B) an equitable tax 
C) supported by the poor 
D) all of the above 
A) a lump-sum tax 
B) an equitable tax 
C) supported by the poor 
D) all of the above

Question 7

If airline travellers are charged a departure tax to help maintain an airport, this tax is justified on the basis of:

Accepted Answer

A) the benefits principle 
B) the ability-to-pay principle 
C) airports are expensive to maintain 
D) horizontal equity 
A) the benefits principle 
B) the ability-to-pay principle 
C) airports are expensive to maintain 
D) horizontal equity

Question 8

Suppose the government imposes a tax of 10 per cent on the first $20 000 of income, 20 % on income from $20 000 to 50 000, and 30 per cent on income from 50 000 or more.Amy has an income of $32 000 and Lee has an income of $60 000.What are the tax liabilities, the marginal tax rate and the average tax rate for Amy and Lee?

Accepted Answer

Amy has a tax liability of $4400, her ma

Question 9

Which of the following statements is most correct?

Accepted Answer

A) deadweight loss is the efficiency that a tax creates as people allocate resources according to market incentives 
B) deadweight loss is the inefficiency that a tax creates as people allocate resources according to market incentives 
C) deadweight loss is the inefficiency that a tax creates as people allocate resources according to the tax incentives 
D) deadweight loss is the efficiency that a tax creates as people allocate resources according to the tax incentives 
A) deadweight loss is the efficiency that a tax creates as people allocate resources according to market incentives 
B) deadweight loss is the inefficiency that a tax creates as people allocate resources according to market incentives 
C) deadweight loss is the inefficiency that a tax creates as people allocate resources according to the tax incentives 
D) deadweight loss is the efficiency that a tax creates as people allocate resources according to the tax incentives

Question 10

Large deadweight losses and large administrative burdens are characteristic of a tax system that is best defined as:

Accepted Answer

A) equitable 
B) bureaucratic 
C) revenue-maximising 
D) inefficient 
A) equitable 
B) bureaucratic 
C) revenue-maximising 
D) inefficient

Question 11

Road construction funded by taxes on petrol is an example of the benefits principle applied to the equity of the tax burden.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that Amy and George have the same income.George has no children.Amy has two children, both of which attend a state-funded school.When Amy's children get sick their health care receives a government subsidy.George has private health insurance.According to the benefits principle:

Accepted Answer

A) Amy should pay more in taxes than George 
B) George should pay more in taxes than Amy 
C) Amy and George should pay the same amount in taxes 
D) the education system should receive more government funding 
A) Amy should pay more in taxes than George 
B) George should pay more in taxes than Amy 
C) Amy and George should pay the same amount in taxes 
D) the education system should receive more government funding

Question 13

Tax policy typically has the goals of efficiency and equity.These goals are frequently:

Accepted Answer

A) met only by a lump-sum tax 
B) consistent with the goals of vertical equity 
C) unable to be both fulfilled simultaneously 
D) achieved when company tax rates are very high 
A) met only by a lump-sum tax 
B) consistent with the goals of vertical equity 
C) unable to be both fulfilled simultaneously 
D) achieved when company tax rates are very high

Question 14

It is rarely straightforward applying the concepts of vertical and horizontal equity to the tax system.

Accepted Answer

A) True 
 B)False

Question 15

When tax laws give preferential treatment to specific types of behaviour, it is called:

Accepted Answer

A) tax evasion 
B) a political pay-off 
C) a tax loophole 
D) compensation for the benefit of society 
A) tax evasion 
B) a political pay-off 
C) a tax loophole 
D) compensation for the benefit of society

Question 16

A progressive tax is a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers.

Accepted Answer

A) True 
 B)False

Question 17

A poorly designed tax policy tends to be accompanied by which of the following costs?

Accepted Answer

A) the transfer of money from the government to the taxpayer 
B) marginal rates 
C) large administrative costs 
D) equity penalties 
A) the transfer of money from the government to the taxpayer 
B) marginal rates 
C) large administrative costs 
D) equity penalties

Question 18

A lump-sum tax has a marginal tax rate that is:

Accepted Answer

A) always positive 
B) always negative 
C) zero 
D) greater than the prevailing average tax rate 
A) always positive 
B) always negative 
C) zero 
D) greater than the prevailing average tax rate

Question 19

Lump-sum taxes:

Accepted Answer

A) are most frequently used to tax real property 
B) do not distort incentives 
C) are the most distortionary taxes 
D) are used in taxing sales 
A) are most frequently used to tax real property 
B) do not distort incentives 
C) are the most distortionary taxes 
D) are used in taxing sales

Question 20

If the government imposes a $2 tax on pizza and so the price of pizza rises from $7 to $9, the deadweight loss will arise from:

Accepted Answer

A) the pizza suppliers who lose $2 of revenue 
B) the consumers who pay the tax 
C) the government which pays $2 to the taxpayer 
D) the consumers who change their behaviour and stop buying pizza as a result of the tax 
A) the pizza suppliers who lose $2 of revenue 
B) the consumers who pay the tax 
C) the government which pays $2 to the taxpayer 
D) the consumers who change their behaviour and stop buying pizza as a result of the tax

Exam 12: The Design of the Tax System

After a tax is imposed some people change their behaviour.These changes cause a deadweight loss to be generated.

Tax evasion is:

While debate over tax policy is complex, economists do have an important role to play.This role is best defined as:

According to the information provided, how much total consumer surplus do Celia and Jim collectively receive from consuming micro-brewed beer when it is priced at $3 a bottle?

Which of the following is a tax system in which higher income taxpayers have lower tax rates, even though they pay a larger amount of tax than lower income taxpayers?

If the government were to impose a tax that assigned everyone the same tax liability, it would be:

If airline travellers are charged a departure tax to help maintain an airport, this tax is justified on the basis of:

Which of the following statements is most correct?

Large deadweight losses and large administrative burdens are characteristic of a tax system that is best defined as:

Road construction funded by taxes on petrol is an example of the benefits principle applied to the equity of the tax burden.

Suppose that Amy and George have the same income.George has no children.Amy has two children, both of which attend a state-funded school.When Amy's children get sick their health care receives a government subsidy.George has private health insurance.According to the benefits principle:

Tax policy typically has the goals of efficiency and equity.These goals are frequently:

It is rarely straightforward applying the concepts of vertical and horizontal equity to the tax system.

When tax laws give preferential treatment to specific types of behaviour, it is called:

A progressive tax is a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers.

A poorly designed tax policy tends to be accompanied by which of the following costs?

A lump-sum tax has a marginal tax rate that is:

Lump-sum taxes:

If the government imposes a $2 tax on pizza and so the price of pizza rises from $7 to $9, the deadweight loss will arise from:

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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