Question 1

A lump-sum tax can distort prices and affect consumption behavior.

Accepted Answer

A) True 
 B)False

Question 2

Most studies show that the price elasticity of demand for gasoline is -0.2. If the price elasticity of supply is 2, then a tax on gasoline will:

Accepted Answer

A)  have no effect on the market equilibrium price of gasoline. 
B)  cause the market equilibrium price of gasoline to fall. 
C)  cause the market equilibrium price paid by buyers to rise. 
D)  cause the net price received by sellers to fall. 
E)  both c and d 
A)  have no effect on the market equilibrium price of gasoline. 
B)  cause the market equilibrium price of gasoline to fall. 
C)  cause the market equilibrium price paid by buyers to rise. 
D)  cause the net price received by sellers to fall. 
E)  both c and d

Question 3

A consumer currently pays $500 a year retail sales taxes. She would be better off if she paid the same amount annually as a lump-sum tax.

Accepted Answer

A) True 
 B)False

Question 4

Differential tax incidence measures the effect:

Accepted Answer

A)  that a tax and the expenditures it finances have on the distribution of income. 
B)  that one tax alone has on the distribution of income. 
C)  on the distribution of income of substituting one tax for another while holding the size and composition of the budget fixed. 
D)  on the distribution of income of substituting one tax for another while changing the kinds of government services financed. 
A)  that a tax and the expenditures it finances have on the distribution of income. 
B)  that one tax alone has on the distribution of income. 
C)  on the distribution of income of substituting one tax for another while holding the size and composition of the budget fixed. 
D)  on the distribution of income of substituting one tax for another while changing the kinds of government services financed.

Question 5

If the market supply of labor services is perfectly inelastic, a tax on labor income will reduce the net wages received by workers by the full amount of the tax per labor hour.

Accepted Answer

A) True 
 B)False

Question 6

If the tax on the sale of gasoline is doubled from 20 cents per gallon to 40 cents per gallon, the excess burden of the tax will quadruple.

Accepted Answer

A) True 
 B)False

Question 7

A $0.30 per unit tax is imposed on a good that reduces the quantity supplied and demanded by 1000 units. What is the deadweight loss ignore price elasticities)

Accepted Answer

A)  $300.00 
B)  $100.00 
C)  $150.00 
D)  Cannot be determined. 
A)  $300.00 
B)  $100.00 
C)  $150.00 
D)  Cannot be determined.

Question 8

If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line prior to the tax:

Accepted Answer

A)  remains unchanged. 
B)  increases. 
C)  decrease. 
D)  can increase and decrease in different regions. 
A)  remains unchanged. 
B)  increases. 
C)  decrease. 
D)  can increase and decrease in different regions.

Question 9

The more price-elastic the demand of a taxed item, the lower the excess burden of a tax on the sale of that item.

Accepted Answer

A) True 
 B)False

Question 10

A tax on land results in an income effect on landlords but no substitution effect. Then it follows that the excess burden of a tax on land will be zero.

Accepted Answer

A) True 
 B)False

Question 11

Assuming that the income effects are negligible and that beer is sold in a competitive market, a 10cent per can tax on beer that causes a 10,000 can per month decline in sales will result in an excess burden of $1,000 per month.

Accepted Answer

A) True 
 B)False

Question 12

Other things being equal, the more inelastic the demand for a taxed good,

Accepted Answer

A)  the greater the portion of the tax paid by sellers. 
B)  the greater the excess burden of the tax. 
C)  the greater the portion of the tax paid by buyers. 
D)  the less the portion of a tax on sellers that can be shifted to buyers. 
A)  the greater the portion of the tax paid by sellers. 
B)  the greater the excess burden of the tax. 
C)  the greater the portion of the tax paid by buyers. 
D)  the less the portion of a tax on sellers that can be shifted to buyers.

Question 13

The current price of compact discs, which are traded in perfectly competitive markets, is $10. A $1 per unit tax is levied on the discs. Annual record sales decline from five million to four million as a result of the tax. Assuming that the income effect of the tax-induced price change is negligible, the excess burden of the tax will be:

Accepted Answer

A)  $500,000 per year. 
B)  $1 million per year. 
C)  $2 million per year. 
D)  $2.5 million per year. 
A)  $500,000 per year. 
B)  $1 million per year. 
C)  $2 million per year. 
D)  $2.5 million per year.

Question 14

A study indicates that taxes in the United States reduce the Gini coefficient for the nation by 10 percent. This implies that taxes make the income distribution more equal.

Accepted Answer

A) True 
 B)False

Question 15

The market supply of labor is perfectly inelastic. However, the income effect of tax-induced wage changes are believed to be substantial. Then it follows that a tax on labor income will:

Accepted Answer

A)  have zero excess burden. 
B)  have positive excess burden. 
C)  be paid entirely by workers as a reduction in net wages. 
D)  both a and c 
E)  both b and c 
A)  have zero excess burden. 
B)  have positive excess burden. 
C)  be paid entirely by workers as a reduction in net wages. 
D)  both a and c 
E)  both b and c

Question 16

The demand for medical care is very inelastic. If a 10-percent tax is levied on the sale of medical services and is collected from medical-care providers, then:

Accepted Answer

A)  the incidence of the tax is likely to be borne entirely by medical-care providers. 
B)  most of the tax is likely to be shifted to those who purchase medical care. 
C)  the market equilibrium price of medical care will fall. 
D)  the excess burden of the tax is likely to be very high. 
A)  the incidence of the tax is likely to be borne entirely by medical-care providers. 
B)  most of the tax is likely to be shifted to those who purchase medical care. 
C)  the market equilibrium price of medical care will fall. 
D)  the excess burden of the tax is likely to be very high.

Question 17

If the compensated elasticity of supply of labor is zero, then a tax on labor earnings will have zero excess burden.

Accepted Answer

A) True 
 B)False

Question 18

Clothing is sold in perfectly competitive markets where no externalities prevail. An excise tax on clothing will result in a market price for clothing that equals the marginal social benefit and marginal social cost of service.

Accepted Answer

A) True 
 B)False

Question 19

Viewed from origin a price distorting tax creates a new budget line with a ______ slope relative to the budget line without the tax.

Accepted Answer

A)  less steep 
B)  more steep 
C)  similar 
D)  varying 
A)  less steep 
B)  more steep 
C)  similar 
D)  varying

A lump-sum tax can distort prices and affect consumption behavior.

Most studies show that the price elasticity of demand for gasoline is -0.2. If the price elasticity of supply is 2, then a tax on gasoline will:

A consumer currently pays $500 a year retail sales taxes. She would be better off if she paid the same amount annually as a lump-sum tax.

Differential tax incidence measures the effect:

If the market supply of labor services is perfectly inelastic, a tax on labor income will reduce the net wages received by workers by the full amount of the tax per labor hour.

If the tax on the sale of gasoline is doubled from 20 cents per gallon to 40 cents per gallon, the excess burden of the tax will quadruple.

A $0.30 per unit tax is imposed on a good that reduces the quantity supplied and demanded by 1000 units. What is the deadweight loss ignore price elasticities)

If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line prior to the tax:

The more price-elastic the demand of a taxed item, the lower the excess burden of a tax on the sale of that item.

A tax on land results in an income effect on landlords but no substitution effect. Then it follows that the excess burden of a tax on land will be zero.

Assuming that the income effects are negligible and that beer is sold in a competitive market, a 10cent per can tax on beer that causes a 10,000 can per month decline in sales will result in an excess burden of $1,000 per month.

Other things being equal, the more inelastic the demand for a taxed good,

A study indicates that taxes in the United States reduce the Gini coefficient for the nation by 10 percent. This implies that taxes make the income distribution more equal.

The market supply of labor is perfectly inelastic. However, the income effect of tax-induced wage changes are believed to be substantial. Then it follows that a tax on labor income will:

The demand for medical care is very inelastic. If a 10-percent tax is levied on the sale of medical services and is collected from medical-care providers, then:

If the compensated elasticity of supply of labor is zero, then a tax on labor earnings will have zero excess burden.

Clothing is sold in perfectly competitive markets where no externalities prevail. An excise tax on clothing will result in a market price for clothing that equals the marginal social benefit and marginal social cost of service.

Viewed from origin a price distorting tax creates a new budget line with a ______ slope relative to the budget line without the tax.

Individuals and Government

Efficiency, Markets, and Government

Externalities and Government Policy

Public Goods

Public Choices and the Political Process

Cost-Benefit Analysis and Government Investments

Government Subsidies and Income Support for the Poor

Social Security and Social Insurance

Government and Health Care

Introduction to Government Finance

Budget, Balance and Government Debt

The Theory of Income Taxation

Taxation of Personal Income in the United States

Taxation of Corporate Income

Taxes on Consumption and Sales

Taxes on Wealth, Property and Estates

Fiscal Federalism and State and Local Government Finance

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

A lump-sum tax can distort prices and affect consumption behavior.

Most studies show that the price elasticity of demand for gasoline is -0.2. If the price elasticity of supply is 2, then a tax on gasoline will:

A consumer currently pays $500 a year retail sales taxes. She would be better off if she paid the same amount annually as a lump-sum tax.

Differential tax incidence measures the effect:

If the market supply of labor services is perfectly inelastic, a tax on labor income will reduce the net wages received by workers by the full amount of the tax per labor hour.

If the tax on the sale of gasoline is doubled from 20 cents per gallon to 40 cents per gallon, the excess burden of the tax will quadruple.

A $0.30 per unit tax is imposed on a good that reduces the quantity supplied and demanded by 1000 units. What is the deadweight loss ignore price elasticities)

If a lump-sum tax is imposed, the slope of the new budget line relative to the budget line prior to the tax:

The more price-elastic the demand of a taxed item, the lower the excess burden of a tax on the sale of that item.

A tax on land results in an income effect on landlords but no substitution effect. Then it follows that the excess burden of a tax on land will be zero.

Assuming that the income effects are negligible and that beer is sold in a competitive market, a 10cent per can tax on beer that causes a 10,000 can per month decline in sales will result in an excess burden of $1,000 per month.

Other things being equal, the more inelastic the demand for a taxed good,

A study indicates that taxes in the United States reduce the Gini coefficient for the nation by 10 percent. This implies that taxes make the income distribution more equal.

The market supply of labor is perfectly inelastic. However, the income effect of tax-induced wage changes are believed to be substantial. Then it follows that a tax on labor income will:

The demand for medical care is very inelastic. If a 10-percent tax is levied on the sale of medical services and is collected from medical-care providers, then:

If the compensated elasticity of supply of labor is zero, then a tax on labor earnings will have zero excess burden.

Clothing is sold in perfectly competitive markets where no externalities prevail. An excise tax on clothing will result in a market price for clothing that equals the marginal social benefit and marginal social cost of service.

Viewed from origin a price distorting tax creates a new budget line with a ______ slope relative to the budget line without the tax.

Individuals and Government

Efficiency, Markets, and Government

Externalities and Government Policy

Public Goods

Public Choices and the Political Process

Cost-Benefit Analysis and Government Investments

Government Subsidies and Income Support for the Poor

Social Security and Social Insurance

Government and Health Care

Introduction to Government Finance

Budget, Balance and Government Debt

The Theory of Income Taxation

Taxation of Personal Income in the United States

Taxation of Corporate Income

Taxes on Consumption and Sales

Taxes on Wealth, Property and Estates

Fiscal Federalism and State and Local Government Finance

Filters