Question 1

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. C

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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:

Accepted Answer

A) decrease the price of food. 
B) increase the price of housing. 
C) decrease the price of housing. 
D) have no effect on either the price of food or housing. 
A) decrease the price of food. 
B) increase the price of housing. 
C) decrease the price of housing. 
D) have no effect on either the price of food or housing. C

Question 4

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 5

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 6

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.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The efficiency-loss ratio relative to tax is:

Accepted Answer

A) the deadweight loss less the tax revenue. 
B) the deadweight loss divided by the tax revenue reduced by one. 
C) the excess burden divided by the tax revenue. 
D) none of these are correct. 
A) the deadweight loss less the tax revenue. 
B) the deadweight loss divided by the tax revenue reduced by one. 
C) the excess burden divided by the tax revenue. 
D) none of these are correct.

Question 10

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

Accepted Answer

A) have a positive excess burden. 
B) be paid entirely by landlords. 
C) have zero excess burden. 
D) both (b) and (c) are correct. 
A) have a positive excess burden. 
B) be paid entirely by landlords. 
C) have zero excess burden. 
D) both (b) and (c) are correct.

Question 11

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.

Accepted Answer

The excess burden of a lump-sum tax will

Question 12

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 mar?ginal social cost of service.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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

Question 15

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 16

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 17

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?

Accepted Answer

A) The incidence of the tax will be borne by builders. 
B) The excess burden of the tax will be zero. 
C) The quantity of new construction supplied will be unaffected. 
D) The tax will be fully shifted to buyers of new construction. 
A) The incidence of the tax will be borne by builders. 
B) The excess burden of the tax will be zero. 
C) The quantity of new construction supplied will be unaffected. 
D) The tax will be fully shifted to buyers of new construction.

Question 18

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) cause the market equilibrium price of gasoline to fall. 
B) cause the market equilibrium price paid by buyers to rise. 
C) cause the net price received by sellers to fall. 
D) both (b) and (c) are correct. 
A) cause the market equilibrium price of gasoline to fall. 
B) cause the market equilibrium price paid by buyers to rise. 
C) cause the net price received by sellers to fall. 
D) both (b) and (c) are correct.

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

Question 20

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

Accepted Answer

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

Differential tax incidence measures the effect:

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

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:

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.

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 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.

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

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

The efficiency-loss ratio relative to tax is:

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

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 mar?ginal social cost of service.

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

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 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.

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?

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:

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

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

Individuals and Government

Efficiency, Markets, and Government

Externalities and Government Policy

Public Goods

Public Choice 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

Differential tax incidence measures the effect:

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

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:

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.

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 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.

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

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

The efficiency-loss ratio relative to tax is:

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

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 mar?ginal social cost of service.

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

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 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.

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?

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:

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

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

Individuals and Government

Efficiency, Markets, and Government

Externalities and Government Policy

Public Goods

Public Choice 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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