Question 1

Suppose you had to design an economic system for a country that had never existed before,like one of the former Soviet Union countries.What criteria would you consider to minimize the excess burden of the system of taxation?

Accepted Answer

Reducing excess burden would be critical,but there has to be a great deal of care involved in ensuring that the tax system is fair.This would be important for a new country that has no institutional history to draw up.

Question 2

The differential taxation of inputs does not create an excess burden.

Accepted Answer

A) True 
 B)False  False

Question 3

Excess burden calculations typically assume many other distortions.

Accepted Answer

A) True 
 B)False  False

Question 4

-Refer to Figure 15.8.If VMPmkt can be characterized by the equation VMPmkt = 50 - 2Hmkt,where H is the number of hours worked,and VMP_home can be characterized by the equation VMP_home = 45 - 3Hhome,where H is the number of hours worked,what is H* if there are a total of 40 hours to be worked between work and home?

Accepted Answer

The answer of 
-Refer to Figure 15.8.If VMPmkt can be...

Question 5

Unit taxes vary along with the price of the taxed commodity.

Accepted Answer

A) True 
 B)False

Question 6

-Refer to Figure 15.5.Suppose that the demand curve for barley can be characterized by the equation P = 100 - 2Q_d.Suppose further that price was $10.00 and a $10.00 tax is imposed on the market. (A)How many barleys would be purchased at a price of $10.00? After tax? (B)What is the amount of tax revenue generated by the tax? (C)How much excess burden is generated by the tax? (D)What is the amount of consumer surplus before and after the tax? What is the difference in consumer surplus? Is it equal to excess burden plus the tax revenue?

Accepted Answer

The answer of 
-Refer to Figure 15.5.Suppose that the demand...

Question 7

The logic of the double-dividend hypothesis may not hold because the Pigouvian tax exacerbates pre-existing distortions in the labor market.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a unit excise tax?

Accepted Answer

A)  a tax of 15%
B)  an admissions fee of $5.00 on each ticket purchased
C)  an ad valorem tax of $3.00
D)  an income tax of $3.00

Question 9

Which of the following should be expected if the tax for a certain good increases?

Accepted Answer

A)  price of the good increases.
B)  the composition of the commodity bundle is distorted.
C)  the budget line pivots out.
D)  only a and b.

Question 10

Points on the same utility curve are

Accepted Answer

A)  points where the person is indifferent between bundles on the line.
B)  points where utility is maximized.
C)  never possible.
D)  known as "points of light."

Question 11

Is it possible to design a tax that does all of the following: i)leaves behavior unchanged so that the quantity demanded of goods and services does not change,ii)creates no excess burden,iii)is not regressive,and iv)is welfare enhancing?

Accepted Answer

The answer of Is it possible to design a tax...

Question 12

Equivalent variation means

Accepted Answer

A)  finding an equivalent change in income that puts a person on the same utility as a change in price would.
B)  finding equal tax rates that insure quantity demanded does not change.
C)  equalizing excess burden across all markets.
D)  moving the same distance in either direction from a starting point on an indifference curve.

Question 13

Lump sum taxation is an attractive policy tool.

Accepted Answer

A) True 
 B)False

Question 14

The Double Dividend Effect requires

Accepted Answer

A)  double credit on airline miles.
B)  two different taxes.
C)  no taxes on stock dividends.
D)  Pigouvian taxes.

Question 15

A tax wedge causes

Accepted Answer

A)  consumer prices to equal producer prices.
B)  producer prices to rise above consumer prices.
C)  consumer prices to separate from producer prices.
D)  all prices to fall.

Question 16

When a demand curve is vertical,the elasticity of demand is equal to

Accepted Answer

A)  0.
B)  1.
C)  ( ∞\infty∞ ) .
D)  -1.

Question 17

Excess burden is largest with

Accepted Answer

A)  lump-sum taxes.
B)  unit taxes.
C)  no taxes.
D)  all of the above.

Question 18

The tax interaction effect is the _________ in excess burden in the labor market stemming from the _______ in real wages caused by a Pigouvian tax.

Accepted Answer

A)  increase;increase
B)  reduce;reduction
C)  increase;reduction
D)  reduction;increase

Question 19

-Refer to Figure 15.7.If the supply curve for labor can be written as L = w/2 - 3/2 and the initial wage was $10,how much excess burden is created if there is a tax on wages of $2?

Accepted Answer

The answer of 
-Refer to Figure 15.7.If the supply curve...

Question 20

All taxes impose an excess burden.

Accepted Answer

A) True 
 B)False

Exam 15: Taxation and Efficiency

Suppose you had to design an economic system for a country that had never existed before,like one of the former Soviet Union countries.What criteria would you consider to minimize the excess burden of the system of taxation?

The differential taxation of inputs does not create an excess burden.

Excess burden calculations typically assume many other distortions.

Unit taxes vary along with the price of the taxed commodity.

The logic of the double-dividend hypothesis may not hold because the Pigouvian tax exacerbates pre-existing distortions in the labor market.

Which of the following is a unit excise tax?

Which of the following should be expected if the tax for a certain good increases?

Points on the same utility curve are

Is it possible to design a tax that does all of the following: i)leaves behavior unchanged so that the quantity demanded of goods and services does not change,ii)creates no excess burden,iii)is not regressive,and iv)is welfare enhancing?

Equivalent variation means

Lump sum taxation is an attractive policy tool.

The Double Dividend Effect requires

A tax wedge causes

When a demand curve is vertical,the elasticity of demand is equal to

Excess burden is largest with

The tax interaction effect is the ___ in excess burden in the labor market stemming from the _ in real wages caused by a Pigouvian tax.

-Refer to Figure 15.7.If the supply curve for labor can be written as L = w/2 - 3/2 and the initial wage was $10,how much excess burden is created if there is a tax on wages of $2?

All taxes impose an excess burden.