Question 1

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 healthcare 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 healthcare have both increased. 
D)  A budget deficit occurs when government spending exceeds government receipts.

Question 2

Who observed that "in this world nothing is certain but death and taxes"?

Accepted Answer

A)  Mark Twain 
B)  P.T. Barnum 
C)  Ben Franklin 
D)  Richard Nixon 
A)  Mark Twain 
B)  P.T. Barnum 
C)  Ben Franklin 
D)  Richard Nixon

Question 3

An efficient tax system is one that (i) maximizes tax revenues.
(ii) minimizes deadweight losses from taxes.
(iii) minimizes administrative burdens from taxes.
(iv) promotes equity across taxpayers.

Accepted Answer

A)  (i) only 
B)  (ii) and (iii) only 
C)  (i), (ii), and (iii) only 
D)  (i), (ii), (iii), and (iv) 
A)  (i) only 
B)  (ii) and (iii) only 
C)  (i), (ii), and (iii) only 
D)  (i), (ii), (iii), and (iv)

Question 4

Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

Accepted Answer

Prior to the tax, consumer surplus was $

Question 5

Part of the deadweight loss from taxing labor earnings is that people

Accepted Answer

A)  will work more. 
B)  will be reluctant to hire accountants to file their tax returns. 
C)  with low tax liabilities will universally be worse off than under some other tax policy. 
D)  will work less. 
A)  will work more. 
B)  will be reluctant to hire accountants to file their tax returns. 
C)  with low tax liabilities will universally be worse off than under some other tax policy. 
D)  will work less.

Question 6

Corporate profits are

Accepted Answer

A)  included in payroll taxes. 
B)  exempt from taxes. 
C)  taxed twice, once as profit and once as dividends. 
D)  taxed to pay for Medicare. 
A)  included in payroll taxes. 
B)  exempt from taxes. 
C)  taxed twice, once as profit and once as dividends. 
D)  taxed to pay for Medicare.

Question 7

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

Accepted Answer

A)  20 percent 
B)  15 percent 
C)  12 percent 
D)  10 percent 
A)  20 percent 
B)  15 percent 
C)  12 percent 
D)  10 percent

Question 8

A lump sum tax can never have horizontal equity.

Accepted Answer

A) True 
 B)False

Question 9

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Accepted Answer

A)  is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy. 
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C)  violates the benefits principle of taxation. 
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts. 
A)  is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy. 
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C)  violates the benefits principle of taxation. 
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.

Question 10

Table 12-11
  
-Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

Accepted Answer

A)  18.7%. 
B)  19.3%. 
C)  20.1%. 
D)  34.0%. 
A)  18.7%. 
B)  19.3%. 
C)  20.1%. 
D)  34.0%.

Question 11

Suppose Hillary values a large order of French fries at $4. Bill values a large order of French fries at $7. The pre- tax price of a large order of French fries is $2. The government imposes a "fat tax" of $3 on each large order of French fries, and the price rises to $5. The deadweight loss from the tax is

Accepted Answer

A)  $4, and the deadweight loss comes from both Hillary and Bill. 
B)  $4, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax. 
C)  $2, and the deadweight loss comes from both Hillary and Bill. 
D)  $2, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax. 
A)  $4, and the deadweight loss comes from both Hillary and Bill. 
B)  $4, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax. 
C)  $2, and the deadweight loss comes from both Hillary and Bill. 
D)  $2, and the deadweight loss comes only from Hillary because she does not buy a large French fries after the tax.

Question 12

Leonard, Sheldon, Raj, and Penny each like science fiction moves. The price of a special boxed set of Star Trek DVDs is $50. Leonard values the set of movies at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes DVDs at $10 each, the price rises to $60. A consequence of the tax is that consumer surplus shrinks by

Accepted Answer

A)  $50 and tax revenues increase by $30, so there is a deadweight loss of $20. 
B)  $35 and tax revenues increase by $30, so there is a deadweight loss of $5. 
C)  $20 and tax revenues increase by $20, so there is no deadweight loss. 
D)  $15 and tax revenues increase by $20, so there is no deadweight loss. 
A)  $50 and tax revenues increase by $30, so there is a deadweight loss of $20. 
B)  $35 and tax revenues increase by $30, so there is a deadweight loss of $5. 
C)  $20 and tax revenues increase by $20, so there is no deadweight loss. 
D)  $15 and tax revenues increase by $20, so there is no deadweight loss.

Question 13

As tax laws become more complex,

Accepted Answer

A)  the administrative burden of taxes will increase. 
B)  compliance costs are likely to decrease. 
C)  the government will collect more in tax revenue. 
D)  the amount of tax revenue lost to tax evasion will decrease. 
A)  the administrative burden of taxes will increase. 
B)  compliance costs are likely to decrease. 
C)  the government will collect more in tax revenue. 
D)  the amount of tax revenue lost to tax evasion will decrease.

Question 14

Table 12-11
  
-Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is

Accepted Answer

A)  19.3%. 
B)  24.0%. 
C)  26.8%. 
D)  34.0%. 
A)  19.3%. 
B)  24.0%. 
C)  26.8%. 
D)  34.0%.

Question 15

Which of the following statements is correct?

Accepted Answer

A)  Equity is more important than efficiency as a goal of the tax system. 
B)  Efficiency is more important than equity as a goal of the tax system. 
C)  Both equity and efficiency are important goals of the tax system. 
D)  Neither equity nor efficiency is an important goal of the tax system. 
A)  Equity is more important than efficiency as a goal of the tax system. 
B)  Efficiency is more important than equity as a goal of the tax system. 
C)  Both equity and efficiency are important goals of the tax system. 
D)  Neither equity nor efficiency is an important goal of the tax system.

Question 16

An advantage of a consumption tax is that it does not distort the incentive to save.

Accepted Answer

A) True 
 B)False

Question 17

If the rich pay more in taxes than the poor, the tax system must be progressive.

Accepted Answer

A) True 
 B)False

Question 18

Table 12-23
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
  
-Refer to Table 12-23. Which of the three tax systems is proportional?

Accepted Answer

A)  Tax System A 
B)  Tax System B 
C)  Tax System C 
D)  None of the systems are proportional. 
A)  Tax System A 
B)  Tax System B 
C)  Tax System C 
D)  None of the systems are proportional.

Question 19

Table 12-8
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown.
  
-Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate?

Accepted Answer

A)  Tax Schedule A 
B)  Tax Schedule B 
C)  Tax Schedule C 
D)  Tax Schedule D 
A)  Tax Schedule A 
B)  Tax Schedule B 
C)  Tax Schedule C 
D)  Tax Schedule D

Question 20

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.

Which of the following statements is not correct?

Who observed that "in this world nothing is certain but death and taxes"?

An efficient tax system is one that (i) maximizes tax revenues. (ii) minimizes deadweight losses from taxes. (iii) minimizes administrative burdens from taxes. (iv) promotes equity across taxpayers.

Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

Part of the deadweight loss from taxing labor earnings is that people

Corporate profits are

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

A lump sum tax can never have horizontal equity.

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

As tax laws become more complex,

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is

Which of the following statements is correct?

An advantage of a consumption tax is that it does not distort the incentive to save.

If the rich pay more in taxes than the poor, the tax system must be progressive.

Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems is proportional?

Table 12-8 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate?

The largest source of income for the federal government is

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

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Exam 12: The Design of the Tax System

Which of the following statements is not correct?

Who observed that "in this world nothing is certain but death and taxes"?

An efficient tax system is one that (i) maximizes tax revenues. (ii) minimizes deadweight losses from taxes. (iii) minimizes administrative burdens from taxes. (iv) promotes equity across taxpayers.

Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

Part of the deadweight loss from taxing labor earnings is that people

Corporate profits are

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

A lump sum tax can never have horizontal equity.

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is

As tax laws become more complex,

Table 12-11 -Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is

Which of the following statements is correct?

An advantage of a consumption tax is that it does not distort the incentive to save.

If the rich pay more in taxes than the poor, the tax system must be progressive.

Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems is proportional?

Table 12-8 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-8. For an individual with $200,000 in taxable income, which tax schedule has the lowest average marginal tax rate?

The largest source of income for the federal government is

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

Filters