Question 1

A tax that has the same average rate at all levels is

Accepted Answer

A) a proportional tax. 
B) a regressive tax. 
C) a marginal tax. 
D) a sales tax. 
E) an efficient-price tax.

Question 2

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

Question 3

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.

Question 4

As a result of the tax on capital income, labor productivity

Accepted Answer

A) increases. 
B) decreases. 
C) fluctuates. 
D) does not change. 
E) might change but whether it increases, decreases, or does not change depends on the magnitude of the tax.

Question 5

Vertical equity is the idea that

Accepted Answer

A) taxpayers with a greater ability to pay should bear a greater share of the taxes. 
B) people should pay taxes equal to the benefits they receive from public benefits. 
C) as income rises, taxes should be efficient, not equitable. 
D) the marriage tax is equitable. 
E) taxes must be fairest to people with the largest incomes.

Question 6

The government once imposed a luxury tax on very expensive jewelry.This tax followed the ________ principle.

Accepted Answer

A) benefits 
B) ability-to-pay 
C) vertical equity 
D) horizontal equity 
E) fair-tax incidence

Question 7

If a good has a tax levied on it, sellers respond to the price that excludes the tax and not the price with the tax because

Accepted Answer

A) the tax is handed over to the state directly by buyers. 
B) sellers do not get to keep the tax revenue. 
C) the demand for the good has decreased. 
D) the quantity supplied of the good increases. 
E) demanders pay none of the tax.

Question 8

The imposition of ________ shifts the labor demand curve downward.

Accepted Answer

A) a sales tax 
B) an income 
C) a social security tax on workers 
D) a social security tax on employers 
E) Both answers C and D are correct.

Question 9

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

Accepted Answer

The answer of How does the elasticity of demand affect...

Question 10

The buyers pay all of a tax when the demand is

Accepted Answer

A) perfectly elastic. 
B) more elastic than the supply. 
C) more inelastic than the supply. 
D) unit elastic. 
E) perfectly inelastic.

Question 11

With a proportional tax, as income increases the amount of tax paid

Accepted Answer

A) eventually phases out to zero. 
B) rises as a percentage of income. 
C) falls as a percentage income. 
D) remains constant as a percentage of income. 
E) first rises and then falls as a percentage of income.

Question 12

Progressive taxes can be justified as fair based on which of the following?

Accepted Answer

A) horizontal equity 
B) vertical equity 
C) benefits received 
D) index of fairness principle 
E) None of the above answers is correct.

Question 13

Which would be a better source of tax revenue for the government, a good with elastic or a good with an inelastic demand? Explain your reasoning.

Accepted Answer

The answer of Which would be a better source of...

Question 14

If neither the demand nor supply of a good is perfectly elastic or inelastic, a tax on the good ________ consumer surplus and ________ producer surplus.

Accepted Answer

A) decreases; decreases 
B) increases; increases 
C) decreases; increases 
D) increases; decreases 
E) decreases; does not change

Question 15

Tax incidence refers to

Accepted Answer

A) how government taxes are spent by the government. 
B) the incidences of tax revolts by the taxpayers. 
C) the amount of a tax minus its burden. 
D) the division of the burden of a tax between the buyer and the seller. 
E) tax revenue minus excess burden.

Question 16

Taxes on labor income ________ a deadweight loss and ________ the supply of labor.

Accepted Answer

A) create; decrease 
B) do not create; increase 
C) create; increase 
D) do not create; decrease 
E) create; do not change

Question 17

Consider the market for dining at Mexican restaurants.Suppose the price elasticity of demand for Mexican food is 1.23 and the price elasticity of supply is 0.47.If the government imposes a tax on Mexican food, do buyers or sellers pay most of the tax? Why?

Accepted Answer

The answer of Consider the market for dining at Mexican...

Question 18

-At harvest time the supply of wheat is perfectly inelastic.If the government taxes wheat at $1 a bushel, then

Accepted Answer

A) the seller pays the entire tax. 
B) the buyer pays the entire tax. 
C) the seller and the buyer split the tax evenly. 
D) the seller and the buyer split the tax but the seller pays more. 
E) no one pays the tax because the wheat must be harvested or it will go to waste.

Question 19

-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 S₀ to S₁.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.

Question 20

A sales tax creates a deadweight loss because

Accepted Answer

A) there is some paperwork opportunity cost of sellers paying the sales tax. 
B) demand and supply both decrease. 
C) less is produced and consumed. 
D) citizens value government goods less than private goods. 
E) the government spends the tax revenue it collects.

Exam 8: Taxes