Exam 11: Taxation, Prices, Efficiency, and the Distribution of Income

A payroll tax results in a difference between the gross wages paid by employers and the net wages received by workers.

The elasticity of supply of land is zero. A tax on land results only in an income effect to landlords. Then it follows that a 10-percent tax on land rents will:

Housing construction is generally believed to be an industry of constant costs. In the long run, which of the following is true if a $10 per square foot tax on housing construction is collected directly from builders

If the price elasticity of supply of labor is equal to 0.5 and the price elasticity of demand for labor is -2, then which of the following is likely to result from a tax on labor earnings

A lump-sum tax results in both income and substitution effects.

The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the tax,

Lump-sum taxes do not prevent prices from equaling the marginal social cost and benefit of any goods and services.

If a $10 per unit tax is levied on the output of a monopolist, more of that tax will be shifted to consumers than would be the case if the same good were produced by a competitive industry.

Explain why the excess burden of a lump-sum tax will always be zero. Why is the payroll tax not a lump-sum tax Show how a payroll tax affects the wages paid by employers and received by workers, assuming that it is withheld from their paychecks. Assuming that the supply of labor is not perfectly inelastic, show how the excess burden can be measured.

Most studies of tax incidence assume that taxes on labor income and other input services are borne entirely by the workers and other input owners that supply the services. This implies that the:

Currently, a 10-cent per gallon tax is levied on gasoline consumption. The tax is increased to 20 cents per gallon. The excess burden of the tax will:

If a per unit tax is imposed, but the quantity supplied and demanded does not change then:

An income tax is an example of a price-distorting tax.

Suppose an economy is comprised of only two markets: one for food and the other for housing. A tax on food used to finance transfer payments is likely to:

Which of the following is true about a lump-sum tax

A lump-sum tax:

The efficiency-loss ratio relative to tax is:

Lump-sum taxes can vary in amount based on income level.

A lump-sum tax only results in income effects.

The excess burden of a tax on interest income is $5 billion per year. Total interest income per year is $50 billion. The tax currently collects $15 billion in revenue per year. The efficiency-loss ratio of the tax is therefore 0.33.