Question 1

The incidence of cigarette taxes falls mainly on

Accepted Answer

A) smokers. 
B) retail sellers of cigarettes. 
C) cigarette producers. 
D) people who are no longer exposed to second-hand smoke. 
A) smokers. 
B) retail sellers of cigarettes. 
C) cigarette producers. 
D) people who are no longer exposed to second-hand smoke.

Question 2

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is an example of a direct tax ?

Accepted Answer

A) Sales tax 
B) Property tax 
C) Gasoline tax 
D) Income tax 
A) Sales tax 
B) Property tax 
C) Gasoline tax 
D) Income tax

Question 4

Many economists believe a comprehensive income tax

Accepted Answer

A) would balance efficiency and equity well. 
B) would be less efficient than excise taxes. 
C) would be more efficient than a lump sum head tax. 
D) would be less equitable than a lump sum head tax. 
A) would balance efficiency and equity well. 
B) would be less efficient than excise taxes. 
C) would be more efficient than a lump sum head tax. 
D) would be less equitable than a lump sum head tax.

Question 5

Taxation lowers social welfare when the taxed good

Accepted Answer

A) has marginal social costs above marginal private costs. 
B) marginal social costs equals marginal private cost. 
C) is overproduced under a free-market system. 
D) imposes negative externalities . 
A) has marginal social costs above marginal private costs. 
B) marginal social costs equals marginal private cost. 
C) is overproduced under a free-market system. 
D) imposes negative externalities .

Question 6

Figure 18-1
 
According to the graph in Figure 17-1, tax collections will be which of the following?

Accepted Answer

A) 14 million 
B) 1.4 million 
C) 12 million 
D) 1 million 
A) 14 million 
B) 1.4 million 
C) 12 million 
D) 1 million

Question 7

The payroll tax represents

Accepted Answer

A) the largest source of revenue in the federal budget. 
B) the second largest source of revenue in the federal budget. 
C) the third largest source of revenue in the federal budget. 
D) the largest source of revenue in state government budgets. 
A) the largest source of revenue in the federal budget. 
B) the second largest source of revenue in the federal budget. 
C) the third largest source of revenue in the federal budget. 
D) the largest source of revenue in state government budgets.

Question 8

The excess burden of an excise tax is

Accepted Answer

A) greater the more inelastic the supply curve. 
B) greater the more elastic the demand curve. 
C) smaller the more elastic the supply curve. 
D) greater the more inelastic the demand curve. 
A) greater the more inelastic the supply curve. 
B) greater the more elastic the demand curve. 
C) smaller the more elastic the supply curve. 
D) greater the more inelastic the demand curve.

Question 9

Which of the following statements is not true?

Accepted Answer

A) Taxes often create inefficiency but can increase equity. 
B) Tax policy is often a balance between equity and efficiency. 
C) Some taxes lead to greater efficiency. 
D) Taxes are about efficiency not equity. 
A) Taxes often create inefficiency but can increase equity. 
B) Tax policy is often a balance between equity and efficiency. 
C) Some taxes lead to greater efficiency. 
D) Taxes are about efficiency not equity.

Question 10

Fiscal federalism

Accepted Answer

A) is uncommon in the United States. 
B) involves grants between levels of government. 
C) relies on balanced budgets. 
D) is administered by the Federal Reserve. 
A) is uncommon in the United States. 
B) involves grants between levels of government. 
C) relies on balanced budgets. 
D) is administered by the Federal Reserve.

Question 11

The second largest source of income for the federal budget is

Accepted Answer

A) personal income taxes. 
B) corporate income taxes. 
C) payroll taxes. 
D) inheritance taxes. 
A) personal income taxes. 
B) corporate income taxes. 
C) payroll taxes. 
D) inheritance taxes.

Question 12

Under a regressive tax, the fraction of income paid in taxes

Accepted Answer

A) rises as income rises. 
B) is unchanged as income changes. 
C) falls as income rises. 
D) is proportional to the change in income. 
A) rises as income rises. 
B) is unchanged as income changes. 
C) falls as income rises. 
D) is proportional to the change in income.

Question 13

The system of grants from one level of government to another is an example of fiscal federalism .

Accepted Answer

A) True 
 B)False

Question 14

An efficient tax is one that raises the desired tax revenue but creates the least possible

Accepted Answer

A) total burden. 
B) excess burden. 
C) tax incidence. 
D) tax shifting. 
A) total burden. 
B) excess burden. 
C) tax incidence. 
D) tax shifting.

Question 15

Many Americans believe that taxes have been gobbling up an ever-increasing share of the U.S. economy. Is this observation correct? Explain.

Accepted Answer

Available data suggests that the share o

Question 16

For about the past 45 years, state and local taxes have remained relatively constant as a percentage of GDP.

Accepted Answer

A) True 
 B)False

Question 17

A tax system under which an individual pays a higher fraction of his income in taxes at higher levels of income is formally described as

Accepted Answer

A) digressive. 
B) progressive. 
C) proportional. 
D) regressive. 
A) digressive. 
B) progressive. 
C) proportional. 
D) regressive.

Question 18

Excise taxes are a form of sales tax.

Accepted Answer

A) True 
 B)False

Question 19

What are tax loopholes and what are their effects?

Accepted Answer

A tax loophole is a special provision in

Question 20

"Those most able should pay the highest taxes" reflects the

Accepted Answer

A) ability-to-pay principle. 
B) concept of horizontal equity. 
C) idea of fiscal federalism. 
D) benefits principle. 
A) ability-to-pay principle. 
B) concept of horizontal equity. 
C) idea of fiscal federalism. 
D) benefits principle.

Exam 17: Taxation and Resource Allocation

The incidence of cigarette taxes falls mainly on

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Which of the following is an example of a direct tax ?

Many economists believe a comprehensive income tax

Taxation lowers social welfare when the taxed good

Figure 18-1 According to the graph in Figure 17-1, tax collections will be which of the following?

The payroll tax represents

The excess burden of an excise tax is

Which of the following statements is not true?

Fiscal federalism

The second largest source of income for the federal budget is

Under a regressive tax, the fraction of income paid in taxes

The system of grants from one level of government to another is an example of fiscal federalism .

An efficient tax is one that raises the desired tax revenue but creates the least possible

Many Americans believe that taxes have been gobbling up an ever-increasing share of the U.S. economy. Is this observation correct? Explain.

For about the past 45 years, state and local taxes have remained relatively constant as a percentage of GDP.

A tax system under which an individual pays a higher fraction of his income in taxes at higher levels of income is formally described as

Excise taxes are a form of sales tax.

What are tax loopholes and what are their effects?

"Those most able should pay the highest taxes" reflects the

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: an Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: the Importance of Marginal Analysis

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

Externalities, Externaliteis, the Environment, and Natural Resources

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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