Question 1

Which of the following is the source of revenue for Medicare and Social Security in the United States?

Accepted Answer

A)  individual income taxes 
B)  sales taxes 
C)  social insurance taxes 
D)  property taxes

Question 2

The median voter theorem states that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle.

Accepted Answer

A) True 
 B)False

Question 3

Interest paid on home mortgages is deductible from individual income taxes. When comparing home owners and renters, the mortgage interest deduction is an example of

Accepted Answer

A)  the benefits-received principle. 
B)  the ability-to-pay principle. 
C)  the horizontal-equity principle. 
D)  how the tax code is used to attain a social objective.

Question 4

The median voter theorem implies that

Accepted Answer

A)  many people will be satisfied with the amount of spending on government funded projects. 
B)  many people will be dissatisfied with the amount of spending on government funded projects. 
C)  people in the political middle will be dissatisfied with the amount of spending on government funded projects. 
D)  spending on government funded projects reflects the preferences of only those far away from the median.

Question 5

Suppose the government wants to finance housing for low-income families by placing a tax on the purchase of luxury homes. Assume the government defines a luxury home as a home that is purchased for at least $1 million. This tax is consistent with the

Accepted Answer

A)  benefits-received principle. 
B)  social equity principle. 
C)  ability-to-pay principle. 
D)  horizontal-equity principle.

Question 6

Figure 18-2  Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, the consumer's burden of the tax

Accepted Answer

A)  is greater under the more elastic supply curve S0. 
B)  is greater under the less elastic supply curve S0. 
C)  is greater under the less elastic supply curve S1. 
D)  is the same under either supply curve because there is a single demand curve that captures buyers' market behavior.

Question 7

The public choice model asserts that the self-interest of policymakers is likely to cause them to take actions that are inconsistent with the preferences of voters, even where those preferences are clear.

Accepted Answer

A) True 
 B)False

Question 8

The public choice model raises questions about the government's ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of government?

Accepted Answer

A)  Congress should abolish the Food and Drug Administration, the Environmental Protection Agency, and other agencies and commissions because the costs of their actions exceed the benefits they provide to the public. 
B)  Government should do more to regulate markets. The public choice model has shown that rent seeking and rational ignorance affect more markets than are currently subject to regulation. 
C)  U.S. citizens can afford more government regulation if the cost of this regulation is borne mostly by taxpayers with the highest incomes. 
D)  Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful purpose, but we need to take the costs of regulation into account along with the benefits.

Question 9

What is the United States government's formal definition of the poverty line?

Accepted Answer

A)  It is a level of annual income equal to total income in society divided by the population, adjusted for a family of four. 
B)  It is a level of annual income equal to the amount of money necessary to purchase the minimum quantity of food required for adequate nutrition. 
C)  It is the annual income level below which a household is exempt from taxes. 
D)  It is a level of annual income equal to three times the amount of money necessary to purchase the minimum quantity of food required for adequate nutrition.

Question 10

Consider the following methods of taxing a corporation's income: 
a. A flat tax, as opposed to a progressive tax, is levied on corporate profits.
b. A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits. The shareholder would then be required to include this amount as taxable income for her personal income tax. The corporation does not pay a tax.
c. A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains.
Which of the methods above would avoid double taxation?

Accepted Answer

A)  a, b, and c 
B)  a and b only 
C)  a and c only 
D)  b and c only

Question 11

Public schools in the United States get most of their operating funds from

Accepted Answer

A)  government production and subsidies. 
B)  income taxes on corporate profits. 
C)  local property taxes. 
D)  tariffs collected on imported goods.

Question 12

Figure 18-2  Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, the producer's burden of the tax

Accepted Answer

A)  is greater under the more elastic supply curve S0. 
B)  is greater under the less elastic supply curve S0. 
C)  is greater under the less elastic supply curve S1. 
D)  is the same under either supply curve because there is a single demand curve that captures buyers' market behavior.

Question 13

Table 18-9
  Table 18-9 shows the income tax brackets and tax rates for single taxpayers in Monrovia.
-Refer to Table 18-9. Sylvia is a single taxpayer with an income of $70,000. What is her marginal tax rate and what is her average tax rate?

Accepted Answer

A)  marginal tax rate = 30%; average tax rate = 30% 
B)  marginal tax rate = 8%; average tax rate = 19.3% 
C)  marginal tax rate = 30%; average tax rate = 22.5% 
D)  marginal tax rate = 20%; average tax rate = 30%

Question 14

Which of the following statements concerning the federal corporate income tax is true?

Accepted Answer

A)  It is an efficient tax because it imposes a small excess burden relative to the tax revenue it raises. 
B)  The incidence of the corporate income tax can be determined by using demand and supply analysis. 
C)  Determining the incidence of the corporate income tax is complicated because it is not certain how corporations respond to the tax. 
D)  The corporate income tax is an example of the benefits-received principle.

Question 15

Figure 18-1 
-Refer to Figure 18-1. Area B + C + F + G represents

Accepted Answer

A)  the portion of sales tax revenue borne by consumers. 
B)  the portion of sales tax revenue borne by producers. 
C)  the excess burden of the sales tax. 
D)  sales tax revenue collected by the government.

Question 16

The actual division of a tax between buyers and sellers in a market is the excess burden of the tax.

Accepted Answer

A) True 
 B)False

Question 17

Economist Kenneth Arrow has shown mathematically that no system of voting will consistently represent the underlying preferences of voters. This finding is called

Accepted Answer

A)  the Arrow impossibility theorem. 
B)  Arrow's median voter model. 
C)  Arrow's Amendment to the public choice model. 
D)  Arrow's majority vote paradox.

Question 18

Table 18-5
  Table 18-5 shows the amount of taxes paid on various levels of income.
-Refer to Table 18-5. The tax system is

Accepted Answer

A)  progressive throughout all levels of income. 
B)  proportional throughout all levels of income. 
C)  regressive throughout all levels of income. 
D)  regressive between $20,000 and $25,000 of income and progressive between $32,000 and $42,000.

Question 19

Since lower-income people spend a larger proportion of their incomes on groceries than do higher-income people, if grocery stores were required by law to charge a 10-cent fee for disposable bags, this fee could be considered a

Accepted Answer

A)  proportional tax. 
B)  progressive tax. 
C)  regressive tax. 
D)  income tax.

Question 20

What is a Lorenz curve and what is a Gini coefficient?

Accepted Answer

The answer of What is a Lorenz curve and what...

Exam 18: Public Choice, Taxes, and the Distribution of Income

Which of the following is the source of revenue for Medicare and Social Security in the United States?

The median voter theorem states that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle.

Interest paid on home mortgages is deductible from individual income taxes. When comparing home owners and renters, the mortgage interest deduction is an example of

The median voter theorem implies that

Suppose the government wants to finance housing for low-income families by placing a tax on the purchase of luxury homes. Assume the government defines a luxury home as a home that is purchased for at least $1 million. This tax is consistent with the

Figure 18-2 Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other. -Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, the consumer's burden of the tax

The public choice model asserts that the self-interest of policymakers is likely to cause them to take actions that are inconsistent with the preferences of voters, even where those preferences are clear.

The public choice model raises questions about the government's ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of government?

What is the United States government's formal definition of the poverty line?

Public schools in the United States get most of their operating funds from

Figure 18-2 Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other. -Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, the producer's burden of the tax

Table 18-9 Table 18-9 shows the income tax brackets and tax rates for single taxpayers in Monrovia. -Refer to Table 18-9. Sylvia is a single taxpayer with an income of $70,000. What is her marginal tax rate and what is her average tax rate?

Which of the following statements concerning the federal corporate income tax is true?

Figure 18-1 -Refer to Figure 18-1. Area B + C + F + G represents

The actual division of a tax between buyers and sellers in a market is the excess burden of the tax.

Economist Kenneth Arrow has shown mathematically that no system of voting will consistently represent the underlying preferences of voters. This finding is called

Table 18-5 Table 18-5 shows the amount of taxes paid on various levels of income. -Refer to Table 18-5. The tax system is

Since lower-income people spend a larger proportion of their incomes on groceries than do higher-income people, if grocery stores were required by law to charge a 10-cent fee for disposable bags, this fee could be considered a

What is a Lorenz curve and what is a Gini coefficient?