Question 1

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that in 2015 the average citizen's federal tax bill is $11,987,and total federal spending is $12,294 per person.In 2015,the federal government will have

Accepted Answer

A)  a budget surplus. 
B)  a budget deficit. 
C)  horizontal equity. 
D)  vertical equity. 
A)  a budget surplus. 
B)  a budget deficit. 
C)  horizontal equity. 
D)  vertical equity.

Question 3

Table 12-12
United States Income Tax Rates for a Single Individual, 2009 and 2010.
  
-Refer to Table 12-12.Kurt is a single person whose taxable income is $35,000 a year.What happened to his average tax rate between 2009 and 2010?

Accepted Answer

A)  It increased. 
B)  It decreased. 
C)  It did not change. 
D)  We do not have enough information to answer this question. 
A)  It increased. 
B)  It decreased. 
C)  It did not change. 
D)  We do not have enough information to answer this question.

Question 4

Table 12-2
Consider the tax rates shown in the table below.
  
-Refer to Table 12-2.If Livi has taxable income of $78,000,her tax liability is

Accepted Answer

A)  $7,800. 
B)  $9,900. 
C)  $10,200. 
D)  $15,020. 
A)  $7,800. 
B)  $9,900. 
C)  $10,200. 
D)  $15,020.

Question 5

The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay for

Accepted Answer

A)  employer-provided pensions. 
B)  Social Security and Medicare. 
C)  employer-provided health benefits. 
D)  job loss and training programs. 
A)  employer-provided pensions. 
B)  Social Security and Medicare. 
C)  employer-provided health benefits. 
D)  job loss and training programs.

Question 6

If your income is $50,000,your income tax liability is $10,000,and you paid $0.25 in taxes on the last dollar you earned,your

Accepted Answer

A)  marginal tax rate is 20 percent. 
B)  average tax rate is 5 percent. 
C)  marginal tax rate is 25 percent. 
D)  average tax rate is 25 percent. 
A)  marginal tax rate is 20 percent. 
B)  average tax rate is 5 percent. 
C)  marginal tax rate is 25 percent. 
D)  average tax rate is 25 percent.

Question 7

Table 12-16
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 12-16.In this economy Tax C 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 8

The federal taxes owed by a taxpayer depend

Accepted Answer

A)  only upon the marginal tax rate on the taxpayer's first $25,000 of income. 
B)  only upon the marginal tax rate on the taxpayer's last $10,000 of income. 
C)  upon all the marginal tax rates up to the taxpayer's overall level of income. 
D)  upon all the marginal tax rates, including those for income levels that exceed the taxpayer's overall level of income. 
A)  only upon the marginal tax rate on the taxpayer's first $25,000 of income. 
B)  only upon the marginal tax rate on the taxpayer's last $10,000 of income. 
C)  upon all the marginal tax rates up to the taxpayer's overall level of income. 
D)  upon all the marginal tax rates, including those for income levels that exceed the taxpayer's overall level of income.

Question 9

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

Accepted Answer

A)  the ability-to-pay principle. 
B)  the benefits principle. 
C)  efficiency arguments. 
D)  regressive tax arguments. 
A)  the ability-to-pay principle. 
B)  the benefits principle. 
C)  efficiency arguments. 
D)  regressive tax arguments.

Question 10

The argument that each person should pay taxes according to how well the individual can shoulder the burden is called

Accepted Answer

A)  the ability-to-pay principle. 
B)  the equity principle. 
C)  the benefits principle. 
D)  regressive. 
A)  the ability-to-pay principle. 
B)  the equity principle. 
C)  the benefits principle. 
D)  regressive.

Question 11

Table 12-4
  
-Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $4.00 to $6.00.Deadweight loss arises because

Accepted Answer

A)  Lucy will pay more tax as a percentage of her value of delights than Ricky. 
B)  Ricky must pay the $2.00 tax from his consumer surplus. 
C)  Ricky will have to pay a higher price for delights. 
D)  Lucy will leave the market. 
A)  Lucy will pay more tax as a percentage of her value of delights than Ricky. 
B)  Ricky must pay the $2.00 tax from his consumer surplus. 
C)  Ricky will have to pay a higher price for delights. 
D)  Lucy will leave the market.

Question 12

Pat calculates that for every extra dollar she earns,she owes the government 33 cents.Her total income now is $35,000,on which she pays taxes of $7,000.Determine her average tax rate and her marginal tax rate.

Accepted Answer

A)  Her average tax rate is 33% and her marginal tax rate is 20%. 
B)  Her average tax rate is 20% and her marginal tax rate is 33%. 
C)  Her average tax rate is 20% and her marginal tax rate is 20%. 
D)  Her average tax rate is 33% and her marginal tax rate is 33%. 
A)  Her average tax rate is 33% and her marginal tax rate is 20%. 
B)  Her average tax rate is 20% and her marginal tax rate is 33%. 
C)  Her average tax rate is 20% and her marginal tax rate is 20%. 
D)  Her average tax rate is 33% and her marginal tax rate is 33%.

Question 13

One advantage of a lump-sum tax over other taxes is that it

Accepted Answer

A)  is both equitable and efficient. 
B)  doesn't cause deadweight loss. 
C)  would place a larger tax burden on the rich. 
D)  would raise more revenues. 
A)  is both equitable and efficient. 
B)  doesn't cause deadweight loss. 
C)  would place a larger tax burden on the rich. 
D)  would raise more revenues.

Question 14

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 15

Scenario 12-3
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 12-3.Suppose the government levies a tax of $1 on each movie ticket and that,as a result,the price of a movie ticket increases to $6.00.If Bob and Lisa both purchase a movie ticket,what is total consumer surplus for Bob and Lisa?

Accepted Answer

A)  $0.00 
B)  $0.50 
C)  $5.00 
D)  $6.00 
A)  $0.00 
B)  $0.50 
C)  $5.00 
D)  $6.00

Question 16

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1)a person with no income would pay no taxes,and 2)a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

Accepted Answer

A)  A lump-sum tax would achieve the second goal but not the first. 
B)  A regressive tax would achieve the second goal but not the first. 
C)  A progressive tax could achieve both goals. 
D)  A proportional tax could achieve the second goal but not the first. 
A)  A lump-sum tax would achieve the second goal but not the first. 
B)  A regressive tax would achieve the second goal but not the first. 
C)  A progressive tax could achieve both goals. 
D)  A proportional tax could achieve the second goal but not the first.

Question 17

Scenario 12-1
Skip places a $20 value on a bottle of wine, and Walt places a $17 value on it. The equilibrium price for a bottle of wine is $15.
-Refer to Scenario 12-1.Suppose the government levies a tax of $3 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $18.What is total consumer surplus after the tax is levied?

Accepted Answer

A)  $0 
B)  $2 
C)  $5 
D)  $6 
A)  $0 
B)  $2 
C)  $5 
D)  $6

Question 18

Which of the following is a characteristic of a more efficient tax system?

Accepted Answer

A)  The system minimizes deadweight loss. 
B)  The system raises the same amount of revenue at a lower cost. 
C)  The system minimizes administrative burdens. 
D)  All of the above are correct. 
A)  The system minimizes deadweight loss. 
B)  The system raises the same amount of revenue at a lower cost. 
C)  The system minimizes administrative burdens. 
D)  All of the above are correct.

Question 19

Table 12-2
Consider the tax rates shown in the table below.
  
-Refer to Table 12-2.If Mateo has taxable income of $165,000,his tax liability is

Accepted Answer

A)  $23,800. 
B)  $36,000. 
C)  $45,000. 
D)  $47,698. 
A)  $23,800. 
B)  $36,000. 
C)  $45,000. 
D)  $47,698.

Question 20

Which of the following statements is not correct?

Accepted Answer

A)  All states have state income taxes, but the percentages vary widely. 
B)  Sales taxes and property taxes are important revenue sources for state and local governments. 
C)  Medicare spending has increased because the percentage of the population that is elderly and the cost of health care have both increased. 
D)  A budget deficit occurs when government spending exceeds government receipts. 
A)  All states have state income taxes, but the percentages vary widely. 
B)  Sales taxes and property taxes are important revenue sources for state and local governments. 
C)  Medicare spending has increased because the percentage of the population that is elderly and the cost of health care have both increased. 
D)  A budget deficit occurs when government spending exceeds government receipts.

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Suppose that in 2015 the average citizen's federal tax bill is $11,987,and total federal spending is $12,294 per person.In 2015,the federal government will have

Table 12-12 United States Income Tax Rates for a Single Individual, 2009 and 2010. -Refer to Table 12-12.Kurt is a single person whose taxable income is $35,000 a year.What happened to his average tax rate between 2009 and 2010?

Table 12-2 Consider the tax rates shown in the table below. -Refer to Table 12-2.If Livi has taxable income of $78,000,her tax liability is

The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay for

If your income is $50,000,your income tax liability is $10,000,and you paid $0.25 in taxes on the last dollar you earned,your

Table 12-16 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 12-16.In this economy Tax C exhibits

The federal taxes owed by a taxpayer depend

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

The argument that each person should pay taxes according to how well the individual can shoulder the burden is called

Table 12-4 -Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $4.00 to $6.00.Deadweight loss arises because

Pat calculates that for every extra dollar she earns,she owes the government 33 cents.Her total income now is $35,000,on which she pays taxes of $7,000.Determine her average tax rate and her marginal tax rate.

One advantage of a lump-sum tax over other taxes is that it

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

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1)a person with no income would pay no taxes,and 2)a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

Which of the following is a characteristic of a more efficient tax system?

Table 12-2 Consider the tax rates shown in the table below. -Refer to Table 12-2.If Mateo has taxable income of $165,000,his tax liability is

Which of the following statements is not correct?

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 Market 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.

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Suppose that in 2015 the average citizen's federal tax bill is $11,987,and total federal spending is $12,294 per person.In 2015,the federal government will have

Table 12-12 United States Income Tax Rates for a Single Individual, 2009 and 2010. -Refer to Table 12-12.Kurt is a single person whose taxable income is $35,000 a year.What happened to his average tax rate between 2009 and 2010?

Table 12-2 Consider the tax rates shown in the table below. -Refer to Table 12-2.If Livi has taxable income of $78,000,her tax liability is

The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay for

If your income is $50,000,your income tax liability is $10,000,and you paid $0.25 in taxes on the last dollar you earned,your

Table 12-16 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 12-16.In this economy Tax C exhibits

The federal taxes owed by a taxpayer depend

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

The argument that each person should pay taxes according to how well the individual can shoulder the burden is called

Table 12-4 -Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $4.00 to $6.00.Deadweight loss arises because

Pat calculates that for every extra dollar she earns,she owes the government 33 cents.Her total income now is $35,000,on which she pays taxes of $7,000.Determine her average tax rate and her marginal tax rate.

One advantage of a lump-sum tax over other taxes is that it

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

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1)a person with no income would pay no taxes,and 2)a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

Which of the following is a characteristic of a more efficient tax system?

Table 12-2 Consider the tax rates shown in the table below. -Refer to Table 12-2.If Mateo has taxable income of $165,000,his tax liability is

Which of the following statements is not correct?

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 Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

Filters