Exam 12: The Design of the Tax System

Mark, Danny, Kristin and Ruthie all love to ski at the local ski resort on weekends. Mark is the most avid skier and places a value of $85 on his weekend skiing. Danny, Kristin and Ruthie place values of $75, $65 and $40, respectively, on their weekend skiing experience. Assume that the price of a weekend ski pass is $38. Further assume that this price reflects the actual unit cost of providing a weekend of skiing. -According to the information provided, how much consumer surplus accrues to Mark and Kristin individually?

Describe the benefits principle of taxation. Explain why the benefits principle may not be equitable (or efficient) for some of the roles government plays.

It is only if a taxpayer has a very low income that his average tax rate will equal his marginal tax rate.

Mark, Danny, Kristin and Ruthie all love to ski at the local ski resort on weekends. Mark is the most avid skier and places a value of $85 on his weekend skiing. Danny, Kristin and Ruthie place values of $75, $65 and $40, respectively, on their weekend skiing experience. Assume that the price of a weekend ski pass is $38. Further assume that this price reflects the actual unit cost of providing a weekend of skiing. -According to the information provided, if the government imposes a tax of $15 on each weekend ski pass, the deadweight loss associated with the tax is:

An efficient tax system is one that generates a lot of revenue even if the administrative burden is high

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

The 'flypaper theory' of taxation means that if a firm has a tax imposed then:

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

Tax avoidance can occur unintentionally.

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

A lump-sum tax imposes a minimal administrative burden on taxpayers because:

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:

Jim and Celia receive great satisfaction from their consumption of micro-brewed beer. Celia would be willing to purchase only one 12-litre bottle and would pay up to $6 for it. Jim would be willing to pay $9 for his first 12-litre bottle, $7 for his second bottle, and $3 for his third bottle. The current market price is $3 per bottle. -According to the information provided, if a tax of $4 is levied on each bottle of micro-brewed beer:

The average tax rate is equal to:

The federal government collects about four-fifths of the taxes in the Australian economy.

The most important taxes for state and local governments in Australia are individual and company income taxes.

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

'Loopholes' refer to the detailed provisions of the tax code that are abused by individuals and companies to avoid paying tax.

Economics is the best way to balance the goals of efficiency and equity.

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