Question 1

An efficient tax system is one that imposes small

Accepted Answer

A)  deadweight losses and administrative burdens. 
B)  marginal rates and deadweight losses. 
C)  administrative burdens and transfers of money. 
D)  marginal rates and transfers of money. 
A)  deadweight losses and administrative burdens. 
B)  marginal rates and deadweight losses. 
C)  administrative burdens and transfers of money. 
D)  marginal rates and transfers of money.

Question 2

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Accepted Answer

A) True 
 B)False

Question 3

All of the following are transfer payments except

Accepted Answer

A)  Medicaid. 
B)  unemployment compensation. 
C)  personal income taxes. 
D)  Food Stamps. 
A)  Medicaid. 
B)  unemployment compensation. 
C)  personal income taxes. 
D)  Food Stamps.

Question 4

The largest source of revenue for the federal government is the

Accepted Answer

A)  individual income tax. 
B)  property tax. 
C)  sales tax. 
D)  corporate income tax. 
A)  individual income tax. 
B)  property tax. 
C)  sales tax. 
D)  corporate income tax.

Question 5

Tax evasion is

Accepted Answer

A)  facilitated by legal deductions to taxable income. 
B)  the same as tax avoidance. 
C)  recommended by the American Accounting Association. 
D)  illegal. 
A)  facilitated by legal deductions to taxable income. 
B)  the same as tax avoidance. 
C)  recommended by the American Accounting Association. 
D)  illegal.

Question 6

Scenario 12-1
Suppose Jim and Joan receive great satisfaction from their consumption of cheesecake.Joan would be willing to purchase only one slice and would pay up to $6 for it.Jim would be willing to pay $9 for his first slice,$7 for his second slice,and $3 for his third slice.The current market price is $3 per slice.
-Refer to Scenario 12-1.Assume that the government places a $4 tax on each slice of cheesecake and that the new equilibrium price is $7.How much tax revenue will be generated from sales to Jim and Joan?

Accepted Answer

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

Question 7

As of 2005,the largest source of receipts for state and local governments was corporate income taxes.

Accepted Answer

A) True 
 B)False

Question 8

The principle that people should pay taxes based on the benefits they receive from government services is called the

Accepted Answer

A)  pay principle. 
B)  tax-benefit principle. 
C)  government services principle. 
D)  benefits principle. 
A)  pay principle. 
B)  tax-benefit principle. 
C)  government services principle. 
D)  benefits principle.

Question 9

The theory that the wealthy should contribute more to police protection than the poor because they have more to protect is based on

Accepted Answer

A)  the ability-to-pay principle. 
B)  a consumption tax plan. 
C)  the benefits principle. 
D)  property tax assessments. 
A)  the ability-to-pay principle. 
B)  a consumption tax plan. 
C)  the benefits principle. 
D)  property tax assessments.

Question 10

The largest source of income for the federal government is

Accepted Answer

A)  individual income taxes. 
B)  corporate taxes. 
C)  tariffs. 
D)  "sin" taxes on alcohol and cigarettes. 
A)  individual income taxes. 
B)  corporate taxes. 
C)  tariffs. 
D)  "sin" taxes on alcohol and cigarettes.

Question 11

Table 12-10
The following table shows the marginal tax rates for unmarried individuals for two years.
  
-Refer to Table 12-10.For an individual who earned $80,000 of taxable income in 2005,what was the individual's average tax rate in 2005?

Accepted Answer

A)  12.7% 
B)  15.0% 
C)  16.1% 
D)  16.9% 
A)  12.7% 
B)  15.0% 
C)  16.1% 
D)  16.9%

Question 12

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Accepted Answer

A)  20 percent 
B)  25 percent 
C)  30 percent 
D)  36.67 percent 
A)  20 percent 
B)  25 percent 
C)  30 percent 
D)  36.67 percent

Question 13

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.

Question 14

Stacy places a $20 value on a bottle of wine,and Andrea places a $17 value on it.The equilibrium price for a bottle of wine is $15.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.Because total consumer surplus has

Accepted Answer

A)  fallen by more than the tax revenue,the tax has a deadweight loss 
B)  fallen by less than the tax revenue,the tax has no dead weight loss. 
C)  fallen by exactly the amount of the tax revenue,the tax has no deadweight loss. 
D)  increased by less than the tax revenue,the tax has a deadweight loss. 
A)  fallen by more than the tax revenue,the tax has a deadweight loss 
B)  fallen by less than the tax revenue,the tax has no dead weight loss. 
C)  fallen by exactly the amount of the tax revenue,the tax has no deadweight loss. 
D)  increased by less than the tax revenue,the tax has a deadweight loss.

Question 15

If we want to gauge how much the income tax system distorts incentives,we should use the

Accepted Answer

A)  average tax rate. 
B)  ability-to-pay principle. 
C)  total tax revenue collected. 
D)  marginal tax rate. 
A)  average tax rate. 
B)  ability-to-pay principle. 
C)  total tax revenue collected. 
D)  marginal tax rate.

Question 16

Suppose that the government collected taxes in the following fashion: people who earn less than $50,000 pay 25 percent in taxes,people who earn between $50,000 and $100,000 pay 35 percent in taxes,people who earn between $100,000 and $200,000 pay 30 percent in taxes,and people who earn more than $200,000 pay 28 percent in taxes.Which of the following statements is correct?

Accepted Answer

A)  The tax system is proportional for income levels less than $50,000 and regressive for income levels above $50,000. 
B)  The tax system is regressive for income levels less than $100,000 and progressive for income levels above $100,000. 
C)  The tax system is progressive for income levels less than $100,000 and regressive for income levels above $100,000. 
D)  The tax system is progressive for income levels less than $50,000 and proportional for income levels above $100,000. 
A)  The tax system is proportional for income levels less than $50,000 and regressive for income levels above $50,000. 
B)  The tax system is regressive for income levels less than $100,000 and progressive for income levels above $100,000. 
C)  The tax system is progressive for income levels less than $100,000 and regressive for income levels above $100,000. 
D)  The tax system is progressive for income levels less than $50,000 and proportional for income levels above $100,000.

Question 17

In order to determine tax incidence,one must

Accepted Answer

A)  consider issues of equity. 
B)  also determine the legal liability of the tax. 
C)  evaluate where the tax burden eventually falls. 
D)  use the "flypaper theory" of taxation. 
A)  consider issues of equity. 
B)  also determine the legal liability of the tax. 
C)  evaluate where the tax burden eventually falls. 
D)  use the "flypaper theory" of taxation.

Exam 12: The Design of the Tax System

An efficient tax system is one that imposes small

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

All of the following are transfer payments except

The largest source of revenue for the federal government is the

Tax evasion is

As of 2005,the largest source of receipts for state and local governments was corporate income taxes.

The principle that people should pay taxes based on the benefits they receive from government services is called the

The theory that the wealthy should contribute more to police protection than the poor because they have more to protect is based on

The largest source of income for the federal government is

Table 12-10 The following table shows the marginal tax rates for unmarried individuals for two years. -Refer to Table 12-10.For an individual who earned $80,000 of taxable income in 2005,what was the individual's average tax rate in 2005?

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Which of the following statements is not correct?

Stacy places a $20 value on a bottle of wine,and Andrea places a $17 value on it.The equilibrium price for a bottle of wine is $15.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.Because total consumer surplus has

If we want to gauge how much the income tax system distorts incentives,we should use the

In order to determine tax incidence,one must

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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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

Five Debates Over Macroeconomic Policy

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