Question 1

How does the elasticity of demand affect the incidence of a tax?

Accepted Answer

For a given elasticity of supp

Question 2

Which resource has the least elastic supply?

Accepted Answer

A)  labor 
B)  capital 
C)  land 
D)  money 
E)  taxes 
A)  labor 
B)  capital 
C)  land 
D)  money 
E)  taxes

Question 3

For 2011,the federal government reduced the Social Security tax on workers by 2 percentage points.This will likely cause

Accepted Answer

A)  an increase in the quantity of workers employed and a decrease in deadweight loss. 
B)  an increase in the quantity of workers employed and an increase in deadweight loss. 
C)  a decrease in the quantity of workers employed and a decrease in deadweight loss. 
D)  a decrease in the quantity of workers employed and an increase in deadweight loss. 
E)  no change in the quantity of workers employed since the demand for labor is more elastic than the supply of labor. 
A)  an increase in the quantity of workers employed and a decrease in deadweight loss. 
B)  an increase in the quantity of workers employed and an increase in deadweight loss. 
C)  a decrease in the quantity of workers employed and a decrease in deadweight loss. 
D)  a decrease in the quantity of workers employed and an increase in deadweight loss. 
E)  no change in the quantity of workers employed since the demand for labor is more elastic than the supply of labor.

Question 4

Suppose that Anthony and Melissa both earn $30,000 and are otherwise the same.If they both pay 10 percent of their income as taxes,then

Accepted Answer

A)  the income tax is regressive. 
B)  the benefits principle of fairness has been achieved. 
C)  horizontal equity has been achieved. 
D)  proportional equity has been achieved. 
E)  vertical equity has been achieved. 
A)  the income tax is regressive. 
B)  the benefits principle of fairness has been achieved. 
C)  horizontal equity has been achieved. 
D)  proportional equity has been achieved. 
E)  vertical equity has been achieved.

Question 5

Which of the following types of taxes generates the most revenue for governments in the United States?

Accepted Answer

A)  Social Security tax 
B)  personal income tax 
C)  property tax 
D)  sales tax 
E)  excise tax 
A)  Social Security tax 
B)  personal income tax 
C)  property tax 
D)  sales tax 
E)  excise tax

Question 6

The 2010 health care reform that expanded public health care coverage for low income individuals by increasing taxes on high income earners.Taking more tax revenue from high income earners reflects

Accepted Answer

A)  the benefits principle because high income earners can more easily bear the burden of taxes. 
B)  the ability-to-pay principle because high income earners can more easily bear the burden of taxes. 
C)  the ability-to-pay principle because high income earners use more public health care services. 
D)  the benefits principle because high income earners use more public health care services. 
E)  a regressive tax system since high income earners will pay a greater dollar amount in taxes. 
A)  the benefits principle because high income earners can more easily bear the burden of taxes. 
B)  the ability-to-pay principle because high income earners can more easily bear the burden of taxes. 
C)  the ability-to-pay principle because high income earners use more public health care services. 
D)  the benefits principle because high income earners use more public health care services. 
E)  a regressive tax system since high income earners will pay a greater dollar amount in taxes.

Question 7

If there is an income tax levied on labor income,the labor demand curve ________ and the labor supply curve ________.

Accepted Answer

A)  shifts rightward; does not shift 
B)  shifts leftward; does not shift 
C)  does not shift; shifts rightward 
D)  does not shift; shifts leftward 
E)  shifts leftward; shifts leftward 
A)  shifts rightward; does not shift 
B)  shifts leftward; does not shift 
C)  does not shift; shifts rightward 
D)  does not shift; shifts leftward 
E)  shifts leftward; shifts leftward

Question 8

Because the supply of capital is highly elastic,taxing the income from capital results in
i.firms that demand capital paying the greater share of the tax.
ii.a decrease in the equilibrium quantity of capital.
iii.a deadweight loss.

Accepted Answer

A)  i only 
B)  ii only 
C)  i and iii 
D)  ii and iii 
E)  i, ii, and iii 
A)  i only 
B)  ii only 
C)  i and iii 
D)  ii and iii 
E)  i, ii, and iii

Question 9

Suppose the elasticity of supply of land is 0 and elasticity of demand is 2.If the government imposes a 10 percent tax on land,then

Accepted Answer

A)  buyers and sellers each pay 5 percent of the tax. 
B)  buyers pay all of the tax. 
C)  sellers pay all of the tax. 
D)  sellers pay a smaller share of the tax than do buyers but both buyers and sellers pay some of the tax. 
E)  buyers pay 1/2 of the tax. 
A)  buyers and sellers each pay 5 percent of the tax. 
B)  buyers pay all of the tax. 
C)  sellers pay all of the tax. 
D)  sellers pay a smaller share of the tax than do buyers but both buyers and sellers pay some of the tax. 
E)  buyers pay 1/2 of the tax.

Question 10

Vertical equity implies that
i.tax rates should be equal for all tax payers.
ii.people with higher income should pay more in taxes.
iii.people with higher incomes should pay a lower average tax rate.

Accepted Answer

A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  ii and iii 
A)  i only 
B)  ii only 
C)  iii only 
D)  i and ii 
E)  ii and iii

Question 11

Giving in to the demand of protestors,suppose the French government reduces the tax on gasoline by 15 percent.Neither the demand for gasoline nor the supply of gasoline is perfectly elastic or inelastic.As a result of the tax cut,the price for a gallon of gasoline paid by buyers

Accepted Answer

A)  falls by 15 percent. 
B)  rises by 15 percent. 
C)  falls by less than 15 percent. 
D)  rises by less than 15 percent. 
E)  falls by more than 15 percent. 
A)  falls by 15 percent. 
B)  rises by 15 percent. 
C)  falls by less than 15 percent. 
D)  rises by less than 15 percent. 
E)  falls by more than 15 percent.

Question 12

What is the difference between vertical equity and horizontal equity?

Accepted Answer

Vertical equity is the requirement that

Question 13

For the United States,which tax is the single biggest source of tax revenue?

Accepted Answer

A)  Social Security tax 
B)  sales tax 
C)  property tax 
D)  personal income tax 
E)  corporation income tax 
A)  Social Security tax 
B)  sales tax 
C)  property tax 
D)  personal income tax 
E)  corporation income tax

Question 14

Sellers bear the entire incidence of a tax on a good.This outcome can occur if

Accepted Answer

A)  supply is perfectly inelastic. 
B)  the good is an inferior good. 
C)  demand is perfectly inelastic. 
D)  the demand curve is downward sloping and the supply curve is upward sloping. 
E)  supply is perfectly elastic. 
A)  supply is perfectly inelastic. 
B)  the good is an inferior good. 
C)  demand is perfectly inelastic. 
D)  the demand curve is downward sloping and the supply curve is upward sloping. 
E)  supply is perfectly elastic.

Question 15

The average tax rate

Accepted Answer

A)  can be calculated by summing all the marginal tax rates up to the level of income for which the average is being calculated. 
B)  is the marginal tax rate divided by the total tax. 
C)  is the percentage of income paid as taxes. 
D)  equals income divided by amount of taxes paid. 
E)  equals the marginal tax rate multiplied by total taxable income. 
A)  can be calculated by summing all the marginal tax rates up to the level of income for which the average is being calculated. 
B)  is the marginal tax rate divided by the total tax. 
C)  is the percentage of income paid as taxes. 
D)  equals income divided by amount of taxes paid. 
E)  equals the marginal tax rate multiplied by total taxable income.

Question 16

Is the deadweight loss from a sales tax on a product larger the more inelastic the demand for the good?

Accepted Answer

No,the deadweight lo

Question 17

-The above figure shows the market for gourmet ice cream.In effort to reduce obesity,government places a $2 tax per gallon on suppliers in this market,shifting the supply curve from S? to S?.The tax incidence is

Accepted Answer

A)  split equally between consumers and producers, each paying $1 per gallon. 
B)  split equally between consumers and producers, each paying $2 per gallon. 
C)  such that consumers pay $2 per gallon and producers pay $1 per gallon. 
D)  such that consumers pay $1 per gallon and producers pay $2 per gallon. 
E)  such that producers pay all of the tax. 
A)  split equally between consumers and producers, each paying $1 per gallon. 
B)  split equally between consumers and producers, each paying $2 per gallon. 
C)  such that consumers pay $2 per gallon and producers pay $1 per gallon. 
D)  such that consumers pay $1 per gallon and producers pay $2 per gallon. 
E)  such that producers pay all of the tax.

Question 18

If the supply of capital is perfectly elastic,a tax on capital income results in

Accepted Answer

A)  a deadweight loss and lenders pay all of the tax. 
B)  a deadweight loss and borrowers (firms) pay all of the tax. 
C)  no deadweight loss and borrowers (firms) and lenders split the tax. 
D)  no deadweight loss and lenders pay all of the tax. 
E)  no deadweight loss and borrowers (firms) pay all of the tax. 
A)  a deadweight loss and lenders pay all of the tax. 
B)  a deadweight loss and borrowers (firms) pay all of the tax. 
C)  no deadweight loss and borrowers (firms) and lenders split the tax. 
D)  no deadweight loss and lenders pay all of the tax. 
E)  no deadweight loss and borrowers (firms) pay all of the tax.

Question 19

Tax incidence is the

Accepted Answer

A)  dollar amount of a tax, expressed as a percentage of the purchase price. 
B)  dollar amount of a tax per unit sold. 
C)  division of a tax burden between the buyer and seller. 
D)  amount of revenue collected by government on a specific good. 
E)  deadweight loss from the tax. 
A)  dollar amount of a tax, expressed as a percentage of the purchase price. 
B)  dollar amount of a tax per unit sold. 
C)  division of a tax burden between the buyer and seller. 
D)  amount of revenue collected by government on a specific good. 
E)  deadweight loss from the tax.

Question 20

Suppose that the elasticity of demand for insulin is 0.1,the elasticity of demand for oranges is 1.2,and the elasticity of supply for insulin and oranges is 0.4.If the government imposes a 10 percent tax on both insulin and oranges,the decrease in the quantity of oranges is ________ the decrease in the quantity of insulin.

Accepted Answer

A)  larger than 
B)  smaller than 
C)  equals to 
D)  not comparable to 
E)  More information is needed to determine how the decrease in the quantity of oranges compares to the decrease in the quantity of insulin. 
A)  larger than 
B)  smaller than 
C)  equals to 
D)  not comparable to 
E)  More information is needed to determine how the decrease in the quantity of oranges compares to the decrease in the quantity of insulin.

How does the elasticity of demand affect the incidence of a tax?

Which resource has the least elastic supply?

For 2011,the federal government reduced the Social Security tax on workers by 2 percentage points.This will likely cause

Suppose that Anthony and Melissa both earn $30,000 and are otherwise the same.If they both pay 10 percent of their income as taxes,then

Which of the following types of taxes generates the most revenue for governments in the United States?

The 2010 health care reform that expanded public health care coverage for low income individuals by increasing taxes on high income earners.Taking more tax revenue from high income earners reflects

If there is an income tax levied on labor income,the labor demand curve and the labor supply curve .

Because the supply of capital is highly elastic,taxing the income from capital results in i.firms that demand capital paying the greater share of the tax. ii.a decrease in the equilibrium quantity of capital. iii.a deadweight loss.

Suppose the elasticity of supply of land is 0 and elasticity of demand is 2.If the government imposes a 10 percent tax on land,then

Vertical equity implies that i.tax rates should be equal for all tax payers. ii.people with higher income should pay more in taxes. iii.people with higher incomes should pay a lower average tax rate.

Giving in to the demand of protestors,suppose the French government reduces the tax on gasoline by 15 percent.Neither the demand for gasoline nor the supply of gasoline is perfectly elastic or inelastic.As a result of the tax cut,the price for a gallon of gasoline paid by buyers

What is the difference between vertical equity and horizontal equity?

For the United States,which tax is the single biggest source of tax revenue?

Sellers bear the entire incidence of a tax on a good.This outcome can occur if

The average tax rate

Is the deadweight loss from a sales tax on a product larger the more inelastic the demand for the good?

-The above figure shows the market for gourmet ice cream.In effort to reduce obesity,government places a $2 tax per gallon on suppliers in this market,shifting the supply curve from S? to S?.The tax incidence is

If the supply of capital is perfectly elastic,a tax on capital income results in

Tax incidence is the

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The U.S.and Global Economies

The Economic Problem

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Elasticities of Demand and Supply

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Exam 8: Taxes

How does the elasticity of demand affect the incidence of a tax?

Which resource has the least elastic supply?

For 2011,the federal government reduced the Social Security tax on workers by 2 percentage points.This will likely cause

Suppose that Anthony and Melissa both earn $30,000 and are otherwise the same.If they both pay 10 percent of their income as taxes,then

Which of the following types of taxes generates the most revenue for governments in the United States?

The 2010 health care reform that expanded public health care coverage for low income individuals by increasing taxes on high income earners.Taking more tax revenue from high income earners reflects

If there is an income tax levied on labor income,the labor demand curve ________ and the labor supply curve ________.

Because the supply of capital is highly elastic,taxing the income from capital results in i.firms that demand capital paying the greater share of the tax. ii.a decrease in the equilibrium quantity of capital. iii.a deadweight loss.

Suppose the elasticity of supply of land is 0 and elasticity of demand is 2.If the government imposes a 10 percent tax on land,then

Vertical equity implies that i.tax rates should be equal for all tax payers. ii.people with higher income should pay more in taxes. iii.people with higher incomes should pay a lower average tax rate.

Giving in to the demand of protestors,suppose the French government reduces the tax on gasoline by 15 percent.Neither the demand for gasoline nor the supply of gasoline is perfectly elastic or inelastic.As a result of the tax cut,the price for a gallon of gasoline paid by buyers

What is the difference between vertical equity and horizontal equity?

For the United States,which tax is the single biggest source of tax revenue?

Sellers bear the entire incidence of a tax on a good.This outcome can occur if

The average tax rate

Is the deadweight loss from a sales tax on a product larger the more inelastic the demand for the good?

-The above figure shows the market for gourmet ice cream.In effort to reduce obesity,government places a $2 tax per gallon on suppliers in this market,shifting the supply curve from S? to S?.The tax incidence is

If the supply of capital is perfectly elastic,a tax on capital income results in

Tax incidence is the

Getting Started

The U.S.and Global Economies

The Economic Problem

Demand and Supply

Elasticities of Demand and Supply

Efficiency and Fairness of Markets

Government Actions in Markets

Global Markets in Action

Externalities

Public Goods and Common Resources

Markets with Private Information

Consumer Choice and Demand

Production and Cost

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Markets for Factors of Production

Economic Inequality

Filters

If there is an income tax levied on labor income,the labor demand curve and the labor supply curve .