Question 1

In which of the following examples is excess burden not present?

Accepted Answer

A) Harriet decides to give up her Saturday hours at her law office after income tax rates rise. 
B) Rudolf still smokes three packs a day even after the excise tax on cigarettes rose 10 cents a pack. 
C) Wilma reduced the automatic payroll deduction to her savings account after the tax on interest was imposed. 
D) Harper decided to take a vacation in Bermuda rather than invest in stocks after the tax rate on capital gains was increased. 
A) Harriet decides to give up her Saturday hours at her law office after income tax rates rise. 
B) Rudolf still smokes three packs a day even after the excise tax on cigarettes rose 10 cents a pack. 
C) Wilma reduced the automatic payroll deduction to her savings account after the tax on interest was imposed. 
D) Harper decided to take a vacation in Bermuda rather than invest in stocks after the tax rate on capital gains was increased.

Question 2

The individual income tax, the inheritance tax, and the head tax are all examples of direct taxes.

Accepted Answer

A) True 
 B)False

Question 3

The federal income tax began in the United States with the

Accepted Answer

A) Morrill Act of 1862. 
B) addition of the Bill of Rights to the Constitution in 1791. 
C) passage of the 16th Amendment to the Constitution in 1913. 
D) New Deal legislation of the 1930s. 
A) Morrill Act of 1862. 
B) addition of the Bill of Rights to the Constitution in 1791. 
C) passage of the 16th Amendment to the Constitution in 1913. 
D) New Deal legislation of the 1930s.

Question 4

A tax has an excess burden whenever

Accepted Answer

A) people are unable to alter their behavior to avoid paying it. 
B) government seeks to raise it. 
C) it raises a great deal of revenue. 
D) it induces people to change their behavior. 
A) people are unable to alter their behavior to avoid paying it. 
B) government seeks to raise it. 
C) it raises a great deal of revenue. 
D) it induces people to change their behavior.

Question 5

A progressive income tax system can be defined as one in which

Accepted Answer

A) the government uses taxes paid by the wealthy to fund programs for the poor. 
B) an individual pays more dollars in taxes when his income rises. 
C) the marginal tax rate rises over time. 
D) the average tax rate is higher for individuals with higher incomes. 
A) the government uses taxes paid by the wealthy to fund programs for the poor. 
B) an individual pays more dollars in taxes when his income rises. 
C) the marginal tax rate rises over time. 
D) the average tax rate is higher for individuals with higher incomes.

Question 6

The system of grants from one level of government to another is an example of fiscal federalism.

Accepted Answer

A) True 
 B)False

Question 7

Figure 18-2  
-Figure 18-2 shows the widget market before and after an excise tax is imposed.What percentage of the tax per widget is borne by consumers, considering the true economic incidence of the tax?

Accepted Answer

A) 0 percent 
B) 20 percent 
C) 50 percent 
D) 80 percent 
A) 0 percent 
B) 20 percent 
C) 50 percent 
D) 80 percent

Question 8

Figure 18-1  
-The percentage of the burden of an excise tax that is borne by sellers generally depends on the

Accepted Answer

A) size of the tax. 
B) relationship between the elasticity of demand and the elasticity of supply. 
C) elasticity of demand. 
D) elasticity of supply. 
A) size of the tax. 
B) relationship between the elasticity of demand and the elasticity of supply. 
C) elasticity of demand. 
D) elasticity of supply.

Question 9

In practice, turning horizontal and vertical equity into tax law

Accepted Answer

A) hasn't been tried. 
B) has been fairly easy. 
C) is resisted by nearly all taxpayers. 
D) has been extremely difficult. 
A) hasn't been tried. 
B) has been fairly easy. 
C) is resisted by nearly all taxpayers. 
D) has been extremely difficult.

Question 10

The excess burden of an excise tax is

Accepted Answer

A) greater the more inelastic the supply curve. 
B) greater the more elastic the demand curve. 
C) smaller the more elastic the supply curve. 
D) greater the more inelastic the demand curve. 
A) greater the more inelastic the supply curve. 
B) greater the more elastic the demand curve. 
C) smaller the more elastic the supply curve. 
D) greater the more inelastic the demand curve.

Question 11

Members of the European Union (EU), rely heavily on this form of indirect taxes.

Accepted Answer

A) Value-added tax 
B) Excise tax 
C) Property tax 
D) Sales tax 
A) Value-added tax 
B) Excise tax 
C) Property tax 
D) Sales tax

Question 12

The concept of equity pertains to the fairness of a tax.

Accepted Answer

A) True 
 B)False

Question 13

Figure 18-3  
-In which panel of Figure 18-3 would an excise tax be borne entirely by the supplier?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 14

If a tax is proportional, the average tax rate

Accepted Answer

A) remains the same as income rises. 
B) rises as income rises. 
C) falls as income rises. 
D) falls as income falls. 
A) remains the same as income rises. 
B) rises as income rises. 
C) falls as income rises. 
D) falls as income falls.

Question 15

Most loopholes in the income tax system

Accepted Answer

A) are more likely to be exploited by the wealthy. 
B) make it more progressive. 
C) were created by the tax reforms instituted in 1986. 
D) do not affect the economic decisions of the people who benefit from them. 
A) are more likely to be exploited by the wealthy. 
B) make it more progressive. 
C) were created by the tax reforms instituted in 1986. 
D) do not affect the economic decisions of the people who benefit from them.

Question 16

Rhode Island has enacted a substantial increase in the tax on employers that finances the workman's compensation system.For some employers, the tax is about $25 per $100 paid in wages.Employers claim they cannot afford to pay the tax.Under which of the following conditions will the actual burden of the tax fall on employers?

Accepted Answer

A) The employers' demand for labor is perfectly elastic. 
B) The supply of labor is perfectly inelastic. 
C) The employers' demand for labor is perfectly inelastic. 
D) The demand for the good they produce must be perfectly inelastic. 
A) The employers' demand for labor is perfectly elastic. 
B) The supply of labor is perfectly inelastic. 
C) The employers' demand for labor is perfectly inelastic. 
D) The demand for the good they produce must be perfectly inelastic.

Question 17

The term "fiscal federalism" refers to

Accepted Answer

A) deficit financing of government programs. 
B) the power of Congress to tax and to determine how tax revenues are spent. 
C) transferring money between levels of government (for example, from a state government to a local government). 
D) the system under which governments ask citizens to vote on major revenue-raising measures (for example, on issues of municipal bonds). 
A) deficit financing of government programs. 
B) the power of Congress to tax and to determine how tax revenues are spent. 
C) transferring money between levels of government (for example, from a state government to a local government). 
D) the system under which governments ask citizens to vote on major revenue-raising measures (for example, on issues of municipal bonds).

Question 18

The more inelastic the demand for a product, the larger the share of the tax that will be paid by consumers.

Accepted Answer

A) True 
 B)False

Question 19

The courts in some states have declared the financing of public schools by local property taxes unconstitutional because

Accepted Answer

A) housing should never be the basis for taxation of any kind. 
B) taxes on real estate generate too much tax revenue. 
C) disparity in property values means some communities have more in tax revenues to spend on education than do communities containing less valuable property. 
D) the funds for public education should come from federal revenues, not from local property taxes. 
A) housing should never be the basis for taxation of any kind. 
B) taxes on real estate generate too much tax revenue. 
C) disparity in property values means some communities have more in tax revenues to spend on education than do communities containing less valuable property. 
D) the funds for public education should come from federal revenues, not from local property taxes.

Question 20

The marginal tax rate has less effect on economic incentives than does the average tax rate.

Accepted Answer

A) True 
 B)False

Exam 17: Taxation and Resource Allocation

In which of the following examples is excess burden not present?

The individual income tax, the inheritance tax, and the head tax are all examples of direct taxes.

The federal income tax began in the United States with the

A tax has an excess burden whenever

A progressive income tax system can be defined as one in which

The system of grants from one level of government to another is an example of fiscal federalism.

Figure 18-2 -Figure 18-2 shows the widget market before and after an excise tax is imposed.What percentage of the tax per widget is borne by consumers, considering the true economic incidence of the tax?

Figure 18-1 -The percentage of the burden of an excise tax that is borne by sellers generally depends on the

In practice, turning horizontal and vertical equity into tax law

The excess burden of an excise tax is

Members of the European Union (EU), rely heavily on this form of indirect taxes.

The concept of equity pertains to the fairness of a tax.

Figure 18-3 -In which panel of Figure 18-3 would an excise tax be borne entirely by the supplier?

If a tax is proportional, the average tax rate

Most loopholes in the income tax system

The term "fiscal federalism" refers to

The more inelastic the demand for a product, the larger the share of the tax that will be paid by consumers.

The courts in some states have declared the financing of public schools by local property taxes unconstitutional because

The marginal tax rate has less effect on economic incentives than does the average tax rate.

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand an Initial Look

Consumer Choice Individual and Market Demand

Demand and Elasticity

Production Inputs and Cost Building Blocks for Supply Analysis

Output Price and Profit the Importance of Marginal Analysis

Securities Business Finance and the Economy the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power Regulation and Antitrust

The Case for Free Markets the Price System

The Shortcomings of Free Markets

Externalities the Environment and Natural Resources

Pricing the Factors of Production

Labor and Entrepreneurship the Human Inputs

Poverty Inequality and Discrimination

Is Us Economic Leadership Threatened

International Trade and Comparative Advantage

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