Question 1

Outline the advantages and disadvantages of a lump-sum tax system.

Accepted Answer

The advantage of lump-sum taxes is that

Question 2

Resources devoted to complying with the tax laws constitute a type of deadweight loss.

Accepted Answer

A) True 
 B)False

Question 3

According to the information provided, assume that the government places a tax of $4 on each bottle of micro-brewed beer.What is Celia's consumer surplus from micro-brewed beer?

Accepted Answer

A) zero 
B) $4 
C) $8 
D) $12 
A) zero 
B) $4 
C) $8 
D) $12

Question 4

Explain the difference between vertical equity and horizontal equity.

Accepted Answer

Vertical equity means that tax

Question 5

According to the information provided, if a tax of $4 is levied on each bottle of micro-brewed beer:

Accepted Answer

A) there will be no deadweight loss 
B) Jim will bear the full burden of the deadweight loss 
C) Celia and Jim will share the burden of the deadweight loss 
D) Celia will bear the full burden of the deadweight loss 
A) there will be no deadweight loss 
B) Jim will bear the full burden of the deadweight loss 
C) Celia and Jim will share the burden of the deadweight loss 
D) Celia will bear the full burden of the deadweight loss

Question 6

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 7

When the marginal tax rate exceeds the average tax rate, the tax is progressive.

Accepted Answer

A) True 
 B)False

Question 8

When a tax is levied as a percentage of the total amount spent in retail stores, this tax is called a:

Accepted Answer

A) value-added tax 
B) retail tax 
C) commercial tax 
D) sales tax 
A) value-added tax 
B) retail tax 
C) commercial tax 
D) sales tax

Question 9

If everyone had to pay a tax of $100 to register their cars, this would be an example of a:

Accepted Answer

A) transport tax 
B) consumption tax 
C) lump-sum tax 
D) marginal tax 
A) transport tax 
B) consumption tax 
C) lump-sum tax 
D) marginal tax

Question 10

When the government levies a tax on a company:

Accepted Answer

A) all the burden of the tax ultimately falls on owners 
B) it is meeting all of the requirements for vertical equity 
C) the company is more like a tax collector than a taxpayer 
D) there are very few distortions to individual incentives 
A) all the burden of the tax ultimately falls on owners 
B) it is meeting all of the requirements for vertical equity 
C) the company is more like a tax collector than a taxpayer 
D) there are very few distortions to individual incentives

Question 11

An efficient tax system has low:

Accepted Answer

A) rates of marginal tax 
B) deadweight losses 
C) rates of average tax 
D) transfers between the Commonwealth government and the States 
A) rates of marginal tax 
B) deadweight losses 
C) rates of average tax 
D) transfers between the Commonwealth government and the States

Question 12

When a tax does not have a deadweight loss, the reduction in surplus is exactly offset by tax revenue collected by the government.

Accepted Answer

A) True 
 B)False

Question 13

Lump-sum taxes are equitable but not efficient.

Accepted Answer

A) True 
 B)False

Question 14

Complex tax laws result from political processes.

Accepted Answer

A) True 
 B)False

Question 15

The assumptions implied by the 'flypaper theory':

Accepted Answer

A) are mostly valid in developed industrialised countries 
B) are necessary for one to discuss the ability-to-pay principle 
C) are rarely valid 
D) provide a fundamental building block for the modern theory of tax incidence 
A) are mostly valid in developed industrialised countries 
B) are necessary for one to discuss the ability-to-pay principle 
C) are rarely valid 
D) provide a fundamental building block for the modern theory of tax incidence

Question 16

The marginal tax rate is equal to:

Accepted Answer

A) total sales taxes divided by total expenditures 
B) extra taxes paid on each dollar of income 
C) extra taxes paid divided by total income 
D) total income divided by total taxes 
A) total sales taxes divided by total expenditures 
B) extra taxes paid on each dollar of income 
C) extra taxes paid divided by total income 
D) total income divided by total taxes

Question 17

When taxes are imposed on a commodity:

Accepted Answer

A) there is never a deadweight loss 
B) some consumers alter their consumption by not purchasing the taxed commodity 
C) tax revenue will rise by the amount of the tax multiplied by the before-tax level of consumption 
D) these taxes are considered non-distortionary 
A) there is never a deadweight loss 
B) some consumers alter their consumption by not purchasing the taxed commodity 
C) tax revenue will rise by the amount of the tax multiplied by the before-tax level of consumption 
D) these taxes are considered non-distortionary

Question 18

Which of the following statements is most 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 19

Suppose you were designing a tax based on horizontal equity, what aspect of assigning the tax would be the most difficult?

Accepted Answer

A) whether or not a taxpayer belongs to a high-income group 
B) the level of transfer payments made to low-income groups 
C) the source of income for taxpayers 
D) determining the differences relevant to a family's ability to pay 
A) whether or not a taxpayer belongs to a high-income group 
B) the level of transfer payments made to low-income groups 
C) the source of income for taxpayers 
D) determining the differences relevant to a family's ability to pay

Question 20

An excise tax on alcohol and tobacco is viewed as an unfair tax on the poor by some critics.

Accepted Answer

A) True 
 B)False

Exam 12: The Design of the Tax System

Outline the advantages and disadvantages of a lump-sum tax system.

Resources devoted to complying with the tax laws constitute a type of deadweight loss.

According to the information provided, assume that the government places a tax of $4 on each bottle of micro-brewed beer.What is Celia's consumer surplus from micro-brewed beer?

Explain the difference between vertical equity and horizontal equity.

According to the information provided, if a tax of $4 is levied on each bottle of micro-brewed beer:

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

When the marginal tax rate exceeds the average tax rate, the tax is progressive.

When a tax is levied as a percentage of the total amount spent in retail stores, this tax is called a:

If everyone had to pay a tax of $100 to register their cars, this would be an example of a:

When the government levies a tax on a company:

An efficient tax system has low:

When a tax does not have a deadweight loss, the reduction in surplus is exactly offset by tax revenue collected by the government.

Lump-sum taxes are equitable but not efficient.

Complex tax laws result from political processes.

The assumptions implied by the 'flypaper theory':

The marginal tax rate is equal to:

When taxes are imposed on a commodity:

Which of the following statements is most correct?

Suppose you were designing a tax based on horizontal equity, what aspect of assigning the tax would be the most difficult?

An excise tax on alcohol and tobacco is viewed as an unfair tax on the poor by some critics.

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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