Question 1

Which of the following statements about a consumption tax is false?

Accepted Answer

A)  Compared to an income tax, a consumption tax would necessarily produce lower revenues for the government in a given year because the portion of income saved is not taxed. 
B)  A consumption tax encourages saving, which when invested could lead to increased economic activity. 
C)  Under a consumption tax, current consumption is taxed at a lower rate than future consumption 
D)  A consumption tax could favor high-income individuals who are likely to save more than low-income individuals. 
A)  Compared to an income tax, a consumption tax would necessarily produce lower revenues for the government in a given year because the portion of income saved is not taxed. 
B)  A consumption tax encourages saving, which when invested could lead to increased economic activity. 
C)  Under a consumption tax, current consumption is taxed at a lower rate than future consumption 
D)  A consumption tax could favor high-income individuals who are likely to save more than low-income individuals. C

Question 2

Unlike the market process,in the political market it is possible for some individuals to receive very large benefits from the political process without any significant impact on their tax bills.

Accepted Answer

A) True 
 B)False  True

Question 3

The idea that individuals should be taxed in proportion to the marginal benefits that they receive from public goods is called

Accepted Answer

A)  the ability-to-pay principle. 
B)  the horizontal-equity principle. 
C)  the vertical-equity principle. 
D)  the benefits-received principle. 
A)  the ability-to-pay principle. 
B)  the horizontal-equity principle. 
C)  the vertical-equity principle. 
D)  the benefits-received principle. D

Question 4

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 5

The largest source of revenue for the federal government of the United States is from

Accepted Answer

A)  tariffs collected on imported goods. 
B)  property taxes imposed on private property. 
C)  sales taxes on items purchased for consumption. 
D)  individual income taxes. 
A)  tariffs collected on imported goods. 
B)  property taxes imposed on private property. 
C)  sales taxes on items purchased for consumption. 
D)  individual income taxes.

Question 6

Table 18-5
   
Table 18-5 shows the income tax brackets and tax rates for single taxpayers in Bauxhall.
-Refer to Table 18-5.A tax exemption is granted for the first $10,000 earned per year.Suppose you earn $75,000.
a.What is the amount of taxes you will pay?
b.What is your average tax rate?
c.What is your marginal tax rate?

Accepted Answer

a.($6,000 × 0.10)+ ($14,000 ×

Question 7

Suppose the equilibrium price and quantity of a 12-pack of Dr.Pepper are $5.00 and 10,000 12-packs,respectively,and the government decides to impose a $1.00 tax on every 12-pack of carbonated soft drinks.Draw two supply and demand graphs,one showing the excess burden of the tax when supply is less elastic and the other showing the excess burden of the tax when supply is more elastic.Identify the excess burden of the tax on each graph.On which graph is the excess burden the greatest?

Accepted Answer

@#IMG-DLM& The excess burden of the tax

Question 8

Figure 18-3  
-Refer to Figure 18-3.Rank the above panels in terms of most unequal income distribution to least unequal income distribution.

Accepted Answer

A)  Panel A, Panel B, Panel C 
B)  Panel B, Panel C, Panel A 
C)  Panel A, Panel C, Panel B 
D)  Panel C, Panel B, Panel A 
A)  Panel A, Panel B, Panel C 
B)  Panel B, Panel C, Panel A 
C)  Panel A, Panel C, Panel B 
D)  Panel C, Panel B, Panel A

Question 9

A personal exemption refers to

Accepted Answer

A)  the tax rate that applies to a particular tax bracket. 
B)  the tax bracket that represents basic living expenses. 
C)  an amount representing basic living expenses that can be subtracted from income. 
D)  a dispensation that allows certain qualifying individuals not to pay federal taxes. 
A)  the tax rate that applies to a particular tax bracket. 
B)  the tax bracket that represents basic living expenses. 
C)  an amount representing basic living expenses that can be subtracted from income. 
D)  a dispensation that allows certain qualifying individuals not to pay federal taxes.

Question 10

The median voter theorem will be an accurate predicator of the outcomes of elections

Accepted Answer

A)  only when voter turnout is very high. 
B)  when a majority of voters have preferences very similar to those of the median voter. 
C)  when a majority of voters have preferences different from those of the median voter. 
D)  regardless of whether preferences among voters are similar or different from those of the median voter. 
A)  only when voter turnout is very high. 
B)  when a majority of voters have preferences very similar to those of the median voter. 
C)  when a majority of voters have preferences different from those of the median voter. 
D)  regardless of whether preferences among voters are similar or different from those of the median voter.

Question 11

The idea that two taxpayers in the same economic circumstances should pay the same level of taxes is known as the

Accepted Answer

A)  ability-to-pay principle. 
B)  vertical-equity principle. 
C)  horizontal-equity principle. 
D)  benefits-received principle. 
A)  ability-to-pay principle. 
B)  vertical-equity principle. 
C)  horizontal-equity principle. 
D)  benefits-received principle.

Question 12

According to public choice theory,policymakers

Accepted Answer

A)  place the interests of the public above their own self-interest. 
B)  are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest. 
C)  act in ways to maximize economic efficiency. 
D)  act in ways to bring about an equitable distribution of society's wealth. 
A)  place the interests of the public above their own self-interest. 
B)  are likely to pursue their own self-interest, even if their self-interest conflicts with the public interest. 
C)  act in ways to maximize economic efficiency. 
D)  act in ways to bring about an equitable distribution of society's wealth.

Question 13

A study published by the Federal Reserve Bank of Chicago indicates that a tax on soda would affect demographic groups in different ways,and the groups that would feel the greatest impact of a soda tax are

Accepted Answer

A)  middle-income families and people with no more than a bachelor's degree. 
B)  the highest-income families and people with post-graduate degrees. 
C)  the lowest-income families and people with less education. 
D)  families with children under the age of 5 and people with at least a high school diploma. 
A)  middle-income families and people with no more than a bachelor's degree. 
B)  the highest-income families and people with post-graduate degrees. 
C)  the lowest-income families and people with less education. 
D)  families with children under the age of 5 and people with at least a high school diploma.

Question 14

If you pay $2,000 in taxes on an income of $20,000,and a tax of $3,500 on an income of $30,000,then over this range of income the tax is

Accepted Answer

A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  There is insufficient information to answer the question. 
A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  There is insufficient information to answer the question.

Question 15

What is meant by the term "rational ignorance"?

Accepted Answer

A)  It refers to the absence of a negative incentive, for example, a fine for not voting, which results in a low voter turnout. 
B)  It refers to a situation where one policymaker deliberately approves a bill he does not support in exchange for a future favorable vote for his own cause. 
C)  It means the lack an economic incentive for voters to become informed about a pending legislation. 
D)  It refers to the fact that policymakers and their constituents have different ideas of what it means to behave rationally and each party deliberately ignores the other's view. 
A)  It refers to the absence of a negative incentive, for example, a fine for not voting, which results in a low voter turnout. 
B)  It refers to a situation where one policymaker deliberately approves a bill he does not support in exchange for a future favorable vote for his own cause. 
C)  It means the lack an economic incentive for voters to become informed about a pending legislation. 
D)  It refers to the fact that policymakers and their constituents have different ideas of what it means to behave rationally and each party deliberately ignores the other's view.

Question 16

If you pay $2,000 in taxes on an income of $20,000,and a tax of $2,700 on an income of $30,000,then over this range of income the tax is

Accepted Answer

A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  There is insufficient information to answer the question. 
A)  regressive. 
B)  proportional. 
C)  progressive. 
D)  There is insufficient information to answer the question.

Question 17

If you pay $3,000 in taxes on an income of $28,000,and $4,450 in taxes on an income of $38,000,what is your marginal tax rate? Show your work.

Accepted Answer

Marginal tax rate =

Question 18

Figure 18-1  
-Refer to Figure 18-1.The excess burden of the tax is represented by the area

Accepted Answer

A)  B+C. 
B)  F+G. 
C)  E+H. 
D)  B+C+F+G. 
A)  B+C. 
B)  F+G. 
C)  E+H. 
D)  B+C+F+G.

Question 19

What is the voting paradox?

Accepted Answer

A)  the observation that less than 60 percent of those eligible to vote actually vote 
B)  the observation that majority voting may not always result in consistent choices 
C)  the idea that wealthy corporations are able to sway politicians to act in ways contrary to the desires of the majority 
D)  people are aware that their votes will not change the political outcome since these outcomes are predetermined by a group of influential politicians 
A)  the observation that less than 60 percent of those eligible to vote actually vote 
B)  the observation that majority voting may not always result in consistent choices 
C)  the idea that wealthy corporations are able to sway politicians to act in ways contrary to the desires of the majority 
D)  people are aware that their votes will not change the political outcome since these outcomes are predetermined by a group of influential politicians

Question 20

Table 18-2
  
-Refer to Table 18-2.The table above outlines the rankings of three members of the U.S.Senate on three spending alternatives.Assume that Congress can spend additional revenue on only one of the three spending alternatives and that Bart,Lisa,and Maggie,all members of the Senate,participate in a series of votes in which they are to determine which of the spending alternatives should receive funding.Three votes will be taken: (1)Immigration Reform and Unemployment Benefits (2)Immigration Reform and Social Security Reform and (3)Unemployment Benefits and Social Security Reform.
Show the results of each vote and determine whether the voting paradox will occur as a result of these votes.

Accepted Answer

First vote:
 @#IMG-DLM& First vote: the majority v

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

Which of the following statements about a consumption tax is false?

Unlike the market process,in the political market it is possible for some individuals to receive very large benefits from the political process without any significant impact on their tax bills.

The idea that individuals should be taxed in proportion to the marginal benefits that they receive from public goods is called

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

The largest source of revenue for the federal government of the United States is from

Figure 18-3 -Refer to Figure 18-3.Rank the above panels in terms of most unequal income distribution to least unequal income distribution.

A personal exemption refers to

The median voter theorem will be an accurate predicator of the outcomes of elections

The idea that two taxpayers in the same economic circumstances should pay the same level of taxes is known as the

According to public choice theory,policymakers

A study published by the Federal Reserve Bank of Chicago indicates that a tax on soda would affect demographic groups in different ways,and the groups that would feel the greatest impact of a soda tax are

If you pay $2,000 in taxes on an income of $20,000,and a tax of $3,500 on an income of $30,000,then over this range of income the tax is

What is meant by the term "rational ignorance"?

If you pay $2,000 in taxes on an income of $20,000,and a tax of $2,700 on an income of $30,000,then over this range of income the tax is

If you pay $3,000 in taxes on an income of $28,000,and $4,450 in taxes on an income of $38,000,what is your marginal tax rate? Show your work.

Figure 18-1 -Refer to Figure 18-1.The excess burden of the tax is represented by the area

What is the voting paradox?

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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