Question 1

A theory of taxation that states that citizens should bear tax burdens in line with their ability to pay taxes is the

Accepted Answer

A)  ability-to-pay principle. 
B)  equity principle. 
C)  benefits-received principle. 
D)  equal payment principle. 
A)  ability-to-pay principle. 
B)  equity principle. 
C)  benefits-received principle. 
D)  equal payment principle. A

Question 2

The principle of second best states that

Accepted Answer

A)  if previously existing distortions exist, a distortionary tax may actually improve efficiency. 
B)  the broader based the tax, the less distortionary it is. 
C)  the more inelastic the demand for a product, the less distortionary a tax on the product would be. 
D)  taxes should be constructed so that they are neutral. 
A)  if previously existing distortions exist, a distortionary tax may actually improve efficiency. 
B)  the broader based the tax, the less distortionary it is. 
C)  the more inelastic the demand for a product, the less distortionary a tax on the product would be. 
D)  taxes should be constructed so that they are neutral. A

Question 3

Refer to Scenario 19.2 below to answer the questions that follow.
SCENARIO 19.2: The current lowest cost method of producing brown paper bags is $5.00 per 100 bags. The government imposes a $0.50 tax per unit of labor. After the tax is imposed, paper bag producers will use two units of labor to produce 100 paper bags. This increases the cost of paper-bag production to $6.50 per 100 bags.
-Refer to Scenario 19.2. If 1,000 paper bags are sold, the total burden of the tax is

Accepted Answer

A)  $1.50. 
B)  $10.00. 
C)  $15.00. 
D)  $65.00 
A)  $1.50. 
B)  $10.00. 
C)  $15.00. 
D)  $65.00 C

Question 4

Refer to the information provided in Table 19.3 below to answer the question that follows.
Table 19.3 $$\begin{array} { c c c c } 
\text { Total Income}&\text {  Total Taxes } & \begin{array} { c } 
\text { Average Tax } \
\text { Rate }
\end{array} & \begin{array} { c } 
\text { Marginal Tax } \
\text { Rate }
\end{array} \
\hline \$ 10,000 & \$ 1,000 & 0.1 & 0.1 \
\$ 20,000 & \$ 2,000 & 0.1 & 0.1 \
\$ 30,000 & \$ 3,000 & 0.1 & 0.1 \
\$ 40,000 & \$ 4,000 & 0.1 & 0.1 \
\hline
\end{array}$$
-Refer to Table 19.3. The tax rate structure in this example is

Accepted Answer

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

Question 5

Refer to Scenario 19.3 below to answer the questions that follow.
SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit.
-Refer to Scenario 19.3. What is the excess burden of the tax?

Accepted Answer

A)  $4 
B)  $36 
C)  $64 
D)  $100 
A)  $4 
B)  $36 
C)  $64 
D)  $100

Question 6

If the marginal tax rate equals the average tax rate, the tax would be

Accepted Answer

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

Question 7

The corporation income tax causes

Accepted Answer

A)  capital to flow into the corporate sector from the noncorporate sector. 
B)  capital to flow from the corporate sector to the noncorporate sector. 
C)  less capital to be used in both the corporate sector and the noncorporate sectors. 
D)  more capital to be used in both the corporate sector and the noncorporate sectors. 
A)  capital to flow into the corporate sector from the noncorporate sector. 
B)  capital to flow from the corporate sector to the noncorporate sector. 
C)  less capital to be used in both the corporate sector and the noncorporate sectors. 
D)  more capital to be used in both the corporate sector and the noncorporate sectors.

Question 8

Refer to the information provided in Table 19.1 below to answer the questions that follow.
Table 19.1
 $$\begin{array} { | c | c | } 
\hline \text { Total Income } & \text { Total Taxes } \
\hline \$ 10,000 & \$ 1,000 \
\hline 20,000 & 2,400 \
\hline 30,000 & 4,500 \
\hline 40,000 & 8,000 \
\hline
\end{array}$$
-Relating to the Economics in Practice on page 392: Refer to Table 19.1. If income increases from $20,000 to $30,000, the marginal tax rate is

Accepted Answer

A)  3%. 
B)  15%. 
C)  21%. 
D)  indeterminate from this information. 
A)  3%. 
B)  15%. 
C)  21%. 
D)  indeterminate from this information.

Question 9

A nonneutral tax cannot be used to reduce distortions created by another nonneutral tax.

Accepted Answer

A) True 
 B)False

Question 10

Refer to Scenario 19.2 below to answer the questions that follow.
SCENARIO 19.2: The current lowest cost method of producing brown paper bags is $5.00 per 100 bags. The government imposes a $0.50 tax per unit of labor. After the tax is imposed, paper bag producers will use two units of labor to produce 100 paper bags. This increases the cost of paper-bag production to $6.50 per 100 bags.
-Refer to Scenario 19.2. If 1,000 paper bags are sold, the excess burden of the tax is

Accepted Answer

A)  $5.00. 
B)  $10.00. 
C)  $15.00. 
D)  $25.00. 
A)  $5.00. 
B)  $10.00. 
C)  $15.00. 
D)  $25.00.

Question 11

Refer to the information provided in Table 19.1 below to answer the questions that follow.
Table 19.1
 $$\begin{array} { | c | c | } 
\hline \text { Total Income } & \text { Total Taxes } \
\hline \$ 10,000 & \$ 1,000 \
\hline 20,000 & 2,400 \
\hline 30,000 & 4,500 \
\hline 40,000 & 8,000 \
\hline
\end{array}$$
-Relating to the Economics in Practice on page 392: Refer to Table 19.1. The tax rate structure in this example is

Accepted Answer

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

Question 12

The total amount of tax you pay divided by your total income is the

Accepted Answer

A)  marginal tax rate. 
B)  average tax rate. 
C)  total tax rate. 
D)  proportional tax rate. 
A)  marginal tax rate. 
B)  average tax rate. 
C)  total tax rate. 
D)  proportional tax rate.

Question 13

If the government used the revenue from the excise tax on alcohol to fund research on alcoholism treatment programs, this would be an example of

Accepted Answer

A)  an ability-to-pay tax. 
B)  a benefits-received tax. 
C)  a vertical equity tax. 
D)  a user fee. 
A)  an ability-to-pay tax. 
B)  a benefits-received tax. 
C)  a vertical equity tax. 
D)  a user fee.

Question 14

A theory of fairness that holds that taxpayers should contribute to the government in proportion to the benefits they receive from public expenditures is the

Accepted Answer

A)  ability-to-pay principle. 
B)  equity principle. 
C)  benefits-received principle. 
D)  equality-for-all principle. 
A)  ability-to-pay principle. 
B)  equity principle. 
C)  benefits-received principle. 
D)  equality-for-all principle.

Question 15

Your employer pays for the maintenance on your car. The monetary value of this car maintenance is

Accepted Answer

A)  included in your economic income, but not your money income. 
B)  not included in your economic income, but included in your money income. 
C)  not included in either economic income or money income. 
D)  included in both economic and money income. 
A)  included in your economic income, but not your money income. 
B)  not included in your economic income, but included in your money income. 
C)  not included in either economic income or money income. 
D)  included in both economic and money income.

Question 16

The United States payroll tax is progressive.

Accepted Answer

A) True 
 B)False

Question 17

Thomas Hobbes argued for a tax on consumption instead of on income because

Accepted Answer

A)  the standard of living depends not on income, but on how much income is spent. 
B)  consumption is the best indication of ability to pay. 
C)  a tax on income discourages saving by taxing savings twice. 
D)  a tax on consumption raises more revenue than a tax on income. 
A)  the standard of living depends not on income, but on how much income is spent. 
B)  consumption is the best indication of ability to pay. 
C)  a tax on income discourages saving by taxing savings twice. 
D)  a tax on consumption raises more revenue than a tax on income.

Question 18

Refer to the information provided in Table 19.1 below to answer the questions that follow.
Table 19.1
 $$\begin{array} { | c | c | } 
\hline \text { Total Income } & \text { Total Taxes } \
\hline \$ 10,000 & \$ 1,000 \
\hline 20,000 & 2,400 \
\hline 30,000 & 4,500 \
\hline 40,000 & 8,000 \
\hline
\end{array}$$
-Relating to the Economics in Practice on page 392: Refer to Table 19.1. At an income level of $20,000, the average tax rate is

Accepted Answer

A)  1.2%. 
B)  8.3%. 
C)  12%. 
D)  24%. 
A)  1.2%. 
B)  8.3%. 
C)  12%. 
D)  24%.

Question 19

Which of the following illustrates the principle of second best?

Accepted Answer

A)  The government imposes taxes on gasoline, and the tax revenue collected is used to pay for road repair. 
B)  The government decides to impose taxes on all grains, rather than imposing a tax only on wheat. 
C)  The government imposes a tax on a paper manufacturer that equals the cost of cleaning the river damaged by the waste discharged into the river by the paper manufacturer. 
D)  A tax imposed on land, because this tax distorts economic decisions less than taxes on other factors of production. 
A)  The government imposes taxes on gasoline, and the tax revenue collected is used to pay for road repair. 
B)  The government decides to impose taxes on all grains, rather than imposing a tax only on wheat. 
C)  The government imposes a tax on a paper manufacturer that equals the cost of cleaning the river damaged by the waste discharged into the river by the paper manufacturer. 
D)  A tax imposed on land, because this tax distorts economic decisions less than taxes on other factors of production.

Question 20

If the average tax rate exceeds the marginal tax rate, the tax would be

Accepted Answer

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

A theory of taxation that states that citizens should bear tax burdens in line with their ability to pay taxes is the

The principle of second best states that

If the marginal tax rate equals the average tax rate, the tax would be

The corporation income tax causes

A nonneutral tax cannot be used to reduce distortions created by another nonneutral tax.

Refer to the information provided in Table 19.1 below to answer the questions that follow. Table 19.1 Total Income Total Taxes \ 10,000 \ 1,000 20,000 2,400 30,000 4,500 40,000 8,000 -Relating to the Economics in Practice on page 392: Refer to Table 19.1. The tax rate structure in this example is

The total amount of tax you pay divided by your total income is the

If the government used the revenue from the excise tax on alcohol to fund research on alcoholism treatment programs, this would be an example of

A theory of fairness that holds that taxpayers should contribute to the government in proportion to the benefits they receive from public expenditures is the

Your employer pays for the maintenance on your car. The monetary value of this car maintenance is

The United States payroll tax is progressive.

Thomas Hobbes argued for a tax on consumption instead of on income because

Which of the following illustrates the principle of second best?

If the average tax rate exceeds the marginal tax rate, the tax would be

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

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Exam 19: Public Finance: The Economics of Taxation

A theory of taxation that states that citizens should bear tax burdens in line with their ability to pay taxes is the

The principle of second best states that

If the marginal tax rate equals the average tax rate, the tax would be

The corporation income tax causes

A nonneutral tax cannot be used to reduce distortions created by another nonneutral tax.

Refer to the information provided in Table 19.1 below to answer the questions that follow. Table 19.1 Total Income Total Taxes \ 10,000 \ 1,000 20,000 2,400 30,000 4,500 40,000 8,000 -Relating to the Economics in Practice on page 392: Refer to Table 19.1. The tax rate structure in this example is

The total amount of tax you pay divided by your total income is the

If the government used the revenue from the excise tax on alcohol to fund research on alcoholism treatment programs, this would be an example of

A theory of fairness that holds that taxpayers should contribute to the government in proportion to the benefits they receive from public expenditures is the

Your employer pays for the maintenance on your car. The monetary value of this car maintenance is

The United States payroll tax is progressive.

Thomas Hobbes argued for a tax on consumption instead of on income because

Which of the following illustrates the principle of second best?

If the average tax rate exceeds the marginal tax rate, the tax would be

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters