Question 1

For a given supply curve, how does the elasticity of demand affect the burden of a tax imposed on a product?

Accepted Answer

A)  The excess burden of the tax will be minimized when the demand is unit-elastic. 
B)  The excess burden of the tax will be greater when the elasticity of supply is greater than the elasticity of demand. 
C)  The excess burden of the tax will be greater when the demand is less elastic than when it is more elastic. 
D)  The excess burden of the tax will be greater when the demand is more elastic than when it is less elastic. 
A)  The excess burden of the tax will be minimized when the demand is unit-elastic. 
B)  The excess burden of the tax will be greater when the elasticity of supply is greater than the elasticity of demand. 
C)  The excess burden of the tax will be greater when the demand is less elastic than when it is more elastic. 
D)  The excess burden of the tax will be greater when the demand is more elastic than when it is less elastic. D

Question 2

Congressman Flack votes for a program that will benefit the constituents of Congressman Walpole. The public choice model suggests that Flack's vote is best explained by which of the following?

Accepted Answer

A)  rational ignorance 
B)  party loyalty 
C)  logrolling 
D)  the voting paradox 
A)  rational ignorance 
B)  party loyalty 
C)  logrolling 
D)  the voting paradox C

Question 3

According to the benefits-received principle of taxation,

Accepted Answer

A)  individuals who receive the benefits from a government program should pay the taxes that support the program. 
B)  because high income individuals receive the most benefits from government programs, they should pay more taxes than lower income individuals. 
C)  people in the same economic situation should bear an equal share of the tax burden. 
D)  the benefits of government programs such as national defense are shared equally by all people; therefore, the burden of paying for these programs should be shared equally. 
A)  individuals who receive the benefits from a government program should pay the taxes that support the program. 
B)  because high income individuals receive the most benefits from government programs, they should pay more taxes than lower income individuals. 
C)  people in the same economic situation should bear an equal share of the tax burden. 
D)  the benefits of government programs such as national defense are shared equally by all people; therefore, the burden of paying for these programs should be shared equally. A

Question 4

Table 18-1
   Suppose $1 billion is available in the budget and Congress is considering allocating the funds to one of the following three alternatives: 1) Subsidies for education, 2) Research on Alzheimer's or 3) Increased border security. Table 18-1 shows three voters' rankings of the alternatives.
-The voting paradox suggests that the "voting market," as represented by elections,

Accepted Answer

A)  leads to a superior outcome in representing consumer preferences compared to the private market for goods and services. 
B)  may often lead to an inefficient outcome in representing consumer preferences compared to the private market for goods and services. 
C)  is no different from the private market for goods and services in terms of representing consumer preferences. 
D)  may not lead to an efficient outcome but certainly leads to a more equitable outcome in terms of distributing goods and services. 
A)  leads to a superior outcome in representing consumer preferences compared to the private market for goods and services. 
B)  may often lead to an inefficient outcome in representing consumer preferences compared to the private market for goods and services. 
C)  is no different from the private market for goods and services in terms of representing consumer preferences. 
D)  may not lead to an efficient outcome but certainly leads to a more equitable outcome in terms of distributing goods and services.

Question 5

Exemptions and deductions are used

Accepted Answer

A)  to add to taxes that must be paid. 
B)  by taxpayers to reduce the amount of income subject to tax. 
C)  to determine the type of tax structure. 
D)  to determine what items are subject to sales taxes. 
A)  to add to taxes that must be paid. 
B)  by taxpayers to reduce the amount of income subject to tax. 
C)  to determine the type of tax structure. 
D)  to determine what items are subject to sales taxes.

Question 6

If you pay a constant percentage of your taxable income in taxes, the tax is

Accepted Answer

A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  random. 
A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  random.

Question 7

Economists caution that conventional statistics used to estimate the extent of poverty in the United States fail to account for benefits people receive that, if considered, would reduce the amount of poverty. Which of the following is an example of these benefits?

Accepted Answer

A)  Individuals can use tax credits and the personal exemption to reduce their taxable incomes. This reduces what they owe the government and increases their disposable incomes. 
B)  The federal income tax system is progressive. As a result, the poor have higher after-tax incomes than they would have if the income tax system was proportional or progressive. 
C)  Individuals with low incomes receive non-cash benefits such as free school lunches and food stamps. 
D)  The federal minimum wage forces employers to pay workers with low skills an efficiency wage. 
A)  Individuals can use tax credits and the personal exemption to reduce their taxable incomes. This reduces what they owe the government and increases their disposable incomes. 
B)  The federal income tax system is progressive. As a result, the poor have higher after-tax incomes than they would have if the income tax system was proportional or progressive. 
C)  Individuals with low incomes receive non-cash benefits such as free school lunches and food stamps. 
D)  The federal minimum wage forces employers to pay workers with low skills an efficiency wage.

Question 8

As the value of the Gini coefficient approaches zero,

Accepted Answer

A)  income distribution becomes less unequal. 
B)  income distribution becomes more unequal. 
C)  the percentage of the population under the poverty line increases. 
D)  the percentage of the population under the poverty line decreases. 
A)  income distribution becomes less unequal. 
B)  income distribution becomes more unequal. 
C)  the percentage of the population under the poverty line increases. 
D)  the percentage of the population under the poverty line decreases.

Question 9

What is the difference between the voting paradox and the Arrow impossibility theorem?

Accepted Answer

The voting paradox is the failure of maj

Question 10

Which of the following statements about rent seeking is false?

Accepted Answer

A)  Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. 
B)  A person is engaging in rent seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. 
C)  Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. 
D)  If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market. 
A)  Rent seeking often involves governments because governments transfer huge amounts of funds that economic agents must compete for. 
B)  A person is engaging in rent seeking behavior when he uses the political process to acquire ownership of a resource that belongs to the public. 
C)  Because rent seeking redistributes society's resources, anyone engaging in such behavior is violating the law. 
D)  If a firm can benefit from government intervention in the economy, it is more likely to spend resources attempting to secure this intervention than toward innovating its product to gain a competitive edge in the market.

Question 11

When considering changes in tax policy, economists usually focus on

Accepted Answer

A)  the average tax rate. 
B)  the marginal tax rate. 
C)  people's willingness to pay taxes. 
D)  people's ability to pay taxes. 
A)  the average tax rate. 
B)  the marginal tax rate. 
C)  people's willingness to pay taxes. 
D)  people's ability to pay taxes.

Question 12

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies.

Accepted Answer

A) True 
 B)False

Question 13

Figure 18-1  
-Refer to Figure 18-1. Area B + C represents

Accepted Answer

A)  the portion of sales tax revenue borne by consumers. 
B)  the portion of sales tax revenue borne by producers. 
C)  the excess burden of the sales tax. 
D)  sales tax revenue collected by the government. 
A)  the portion of sales tax revenue borne by consumers. 
B)  the portion of sales tax revenue borne by producers. 
C)  the excess burden of the sales tax. 
D)  sales tax revenue collected by the government.

Question 14

If grocery stores were legally required to charge a 10-cent fee for disposable grocery bags, who would bear the largest burden of this fee?

Accepted Answer

Since consumers need groceries and would

Question 15

At the state and local levels in the United States, the largest source of tax revenue is

Accepted Answer

A)  individual income taxes. 
B)  property tax on real estate. 
C)  sales tax. 
D)  grants from the federal government. 
A)  individual income taxes. 
B)  property tax on real estate. 
C)  sales tax. 
D)  grants from the federal government.

Question 16

In reference to the federal income tax system, a tax bracket is

Accepted Answer

A)  the estimated amount of federal income tax firms withhold from their employees' paychecks. 
B)  the formula the federal government uses to determine the dollar amount of the personal exemption and the amounts taxpayers are allowed for deductions from their incomes. 
C)  used to determine the average tax rate. 
D)  the income range within which a tax rate applies. 
A)  the estimated amount of federal income tax firms withhold from their employees' paychecks. 
B)  the formula the federal government uses to determine the dollar amount of the personal exemption and the amounts taxpayers are allowed for deductions from their incomes. 
C)  used to determine the average tax rate. 
D)  the income range within which a tax rate applies.

Question 17

Explain the effect of price elasticities of supply and demand on tax incidence.

Accepted Answer

If demand is less elastic than

Question 18

Logrolling may result in

Accepted Answer

A)  legislation that yields economy-wide benefits, the funding for which is borne primarily by a few of the smallest states. 
B)  a majority of Congress supporting legislation that benefits the economic interests of a few, while harming the economic interests of a much larger group. 
C)  members of Congress selling their votes on proposed legislation to the highest bidder. 
D)  creating limited incentives for policymakers to consider the immediate consequences of their proposed legislation. 
A)  legislation that yields economy-wide benefits, the funding for which is borne primarily by a few of the smallest states. 
B)  a majority of Congress supporting legislation that benefits the economic interests of a few, while harming the economic interests of a much larger group. 
C)  members of Congress selling their votes on proposed legislation to the highest bidder. 
D)  creating limited incentives for policymakers to consider the immediate consequences of their proposed legislation.

Question 19

A tax bracket is

Accepted Answer

A)  the percent of taxable income paid in taxes at a specific income bracket. 
B)  the income range within which a particular tax rate applies. 
C)  the type of tax structure for which a range of taxes applies. 
D)  the range, from the high to the low tax rate, of a particular type of tax. 
A)  the percent of taxable income paid in taxes at a specific income bracket. 
B)  the income range within which a particular tax rate applies. 
C)  the type of tax structure for which a range of taxes applies. 
D)  the range, from the high to the low tax rate, of a particular type of tax.

Question 20

What is rent seeking and how is it related to regulatory capture?

Accepted Answer

Rent seeking is the attempt by individua

Exam 18: Public Choice, Taxes, and the Distribution of Income

For a given supply curve, how does the elasticity of demand affect the burden of a tax imposed on a product?

Congressman Flack votes for a program that will benefit the constituents of Congressman Walpole. The public choice model suggests that Flack's vote is best explained by which of the following?

According to the benefits-received principle of taxation,

Exemptions and deductions are used

If you pay a constant percentage of your taxable income in taxes, the tax is

Economists caution that conventional statistics used to estimate the extent of poverty in the United States fail to account for benefits people receive that, if considered, would reduce the amount of poverty. Which of the following is an example of these benefits?

As the value of the Gini coefficient approaches zero,

What is the difference between the voting paradox and the Arrow impossibility theorem?

Which of the following statements about rent seeking is false?

When considering changes in tax policy, economists usually focus on

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies.

Figure 18-1 -Refer to Figure 18-1. Area B + C represents

If grocery stores were legally required to charge a 10-cent fee for disposable grocery bags, who would bear the largest burden of this fee?

At the state and local levels in the United States, the largest source of tax revenue is

In reference to the federal income tax system, a tax bracket is

Explain the effect of price elasticities of supply and demand on tax incidence.

Logrolling may result in

A tax bracket is

What is rent seeking and how is it related to regulatory capture?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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