Question 1

Which of the following situations is a clear application of the benefits principle of taxation?

Accepted Answer

A)  wealthier people are taxed more heavily 
B)  heavier vehicles are charged higher tolls on turnpikes 
C)  state government providing a free education to any child in the state 
D)  sales of measles vaccine exempt from sales tax 
A)  wealthier people are taxed more heavily 
B)  heavier vehicles are charged higher tolls on turnpikes 
C)  state government providing a free education to any child in the state 
D)  sales of measles vaccine exempt from sales tax

Question 2

Figure 18-1
  
-According to the graph in Figure 18-1, the tax is which of the following?

Accepted Answer

A)  400 
B)  600 
C)  1,000 
D)  200 
A)  400 
B)  600 
C)  1,000 
D)  200

Question 3

Many environmentalists have advocated a substantial increase in the gasoline tax to cut down the federal deficit and to reduce pollution due to auto emissions.Such a tax increase would be devastating to people who commute significant distances to work.In fact, it would provide an incentive to relocate closer to work or change jobs.Economists refer to such effects of taxes as the

Accepted Answer

A)  burden of a tax. 
B)  regressive incidence of a tax. 
C)  incidence of a tax. 
D)  excess burden of a tax. 
A)  burden of a tax. 
B)  regressive incidence of a tax. 
C)  incidence of a tax. 
D)  excess burden of a tax.

Question 4

An excess burden is present when taxpayers alter their behavior on account of taxation.

Accepted Answer

A) True 
 B)False

Question 5

Federal tax loopholes in personal income tax provide benefits only to very high-income people.

Accepted Answer

A) True 
 B)False

Question 6

The corporate income tax is

Accepted Answer

A)  a tax on corporate profit, not revenue. 
B)  the single largest source of federal revenue. 
C)  a payroll tax paid partially by employees and partially by employers. 
D)  has increased as a proportion of federal tax revenue since 1950. 
A)  a tax on corporate profit, not revenue. 
B)  the single largest source of federal revenue. 
C)  a payroll tax paid partially by employees and partially by employers. 
D)  has increased as a proportion of federal tax revenue since 1950.

Question 7

On necessities, more of the incidence of tax is

Accepted Answer

A)  borne by the producer. 
B)  borne by the consumer. 
C)  shared equally between the producer and the consumer. 
D)  None of the above is correct. 
A)  borne by the producer. 
B)  borne by the consumer. 
C)  shared equally between the producer and the consumer. 
D)  None of the above is correct.

Question 8

The major objective of the 1986 tax reform was to: (i) enhance efficiency by lowering marginal tax rates; (ii) enhance equity by closing "loopholes."

Accepted Answer

A)  i and ii 
B)  i but not ii 
C)  ii but not i 
D)  neither i nor ii 
A)  i and ii 
B)  i but not ii 
C)  ii but not i 
D)  neither i nor ii

Question 9

A tax that reduces economic efficiency is always bad policy.

Accepted Answer

A) True 
 B)False

Question 10

Under a regressive tax, the fraction of income paid in taxes

Accepted Answer

A)  rises as income rises. 
B)  is unchanged as income changes. 
C)  falls as income rises. 
D)  is proportional to the change in income. 
A)  rises as income rises. 
B)  is unchanged as income changes. 
C)  falls as income rises. 
D)  is proportional to the change in income.

Question 11

The idea of horizontal equity in taxation implies that

Accepted Answer

A)  equally situated individuals should be taxed equally. 
B)  unequally situated individuals should be taxed unequally. 
C)  benefits should be given first to those individuals who need them most. 
D)  the greatest tax burden should be borne by the wealthiest individuals. 
A)  equally situated individuals should be taxed equally. 
B)  unequally situated individuals should be taxed unequally. 
C)  benefits should be given first to those individuals who need them most. 
D)  the greatest tax burden should be borne by the wealthiest individuals.

Question 12

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 13

A comprehensive income tax with few loopholes is efficient because labor

Accepted Answer

A)  supply is very little affected by taxation. 
B)  demand is very little affected by taxation. 
C)  supply is highly responsive to taxation. 
D)  demand is highly responsive to taxation. 
A)  supply is very little affected by taxation. 
B)  demand is very little affected by taxation. 
C)  supply is highly responsive to taxation. 
D)  demand is highly responsive to taxation.

Question 14

What is the flypaper theory of tax incidence? This theory is typically wrong.Why?

Accepted Answer

This is an axiom which maintains that th

Question 15

Taxes on sales of liquor, tobacco, and tires are examples of

Accepted Answer

A)  direct taxes. 
B)  excise taxes. 
C)  progressive taxation. 
D)  loopholes. 
A)  direct taxes. 
B)  excise taxes. 
C)  progressive taxation. 
D)  loopholes.

Question 16

Property taxes are the main source of funding for public schools.

Accepted Answer

A) True 
 B)False

Question 17

The incidence of a payroll tax

Accepted Answer

A)  depends upon whether it is levied on the employer or employee. 
B)  is the same whether it is levied on the employer or the employee. 
C)  is more heavily on the employee as demand for labor becomes more elastic. 
D)  is more heavily on the employer as demand for labor becomes less elastic. 
A)  depends upon whether it is levied on the employer or employee. 
B)  is the same whether it is levied on the employer or the employee. 
C)  is more heavily on the employee as demand for labor becomes more elastic. 
D)  is more heavily on the employer as demand for labor becomes less elastic.

Question 18

The United States Social Security system

Accepted Answer

A)  pays benefits in direct accordance to what each individual has paid into the system. 
B)  has paid the current generation of recipients less in benefits than it paid in payroll taxes. 
C)  has paid the current generation of recipients more than it paid in payroll taxes. 
D)  paid the earlier generations more and the current generation less than each paid in payroll taxes. 
A)  pays benefits in direct accordance to what each individual has paid into the system. 
B)  has paid the current generation of recipients less in benefits than it paid in payroll taxes. 
C)  has paid the current generation of recipients more than it paid in payroll taxes. 
D)  paid the earlier generations more and the current generation less than each paid in payroll taxes.

Question 19

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

Accepted Answer

A) True 
 B)False

Exam 18: Taxation and Resource Allocation

Which of the following situations is a clear application of the benefits principle of taxation?

Figure 18-1 -According to the graph in Figure 18-1, the tax is which of the following?

An excess burden is present when taxpayers alter their behavior on account of taxation.

Federal tax loopholes in personal income tax provide benefits only to very high-income people.

The corporate income tax is

On necessities, more of the incidence of tax is

The major objective of the 1986 tax reform was to: (i) enhance efficiency by lowering marginal tax rates; (ii) enhance equity by closing "loopholes."

A tax that reduces economic efficiency is always bad policy.

Under a regressive tax, the fraction of income paid in taxes

The idea of horizontal equity in taxation implies that

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

A comprehensive income tax with few loopholes is efficient because labor

What is the flypaper theory of tax incidence? This theory is typically wrong.Why?

Taxes on sales of liquor, tobacco, and tires are examples of

Property taxes are the main source of funding for public schools.

The incidence of a payroll tax

The United States Social Security system

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 I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

Filters