Question 1

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 2

What does a Lorenz curve illustrate?

Accepted Answer

A) a comparison of the distribution of income in two different countries 
B) the distribution of income within a country in a given time period 
C) the share of taxes paid by different groups of households 
D) the change over time in the percentage of households with incomes that place them below the poverty line 
A) a comparison of the distribution of income in two different countries 
B) the distribution of income within a country in a given time period 
C) the share of taxes paid by different groups of households 
D) the change over time in the percentage of households with incomes that place them below the poverty line

Question 3

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 4

A proportional tax is a tax for which people with lower incomes

Accepted Answer

A) pay a higher percentage of their incomes in tax than do people with higher incomes. 
B) pay a lower percentage of their incomes in tax than do people with higher incomes. 
C) pay the same percentage of their incomes in tax as do people with higher incomes. 
D) pay the same amount of taxes as people with higher incomes pay. 
A) pay a higher percentage of their incomes in tax than do people with higher incomes. 
B) pay a lower percentage of their incomes in tax than do people with higher incomes. 
C) pay the same percentage of their incomes in tax as do people with higher incomes. 
D) pay the same amount of taxes as people with higher incomes pay.

Question 5

Describe the main factors economists believe cause inequality of income.

Accepted Answer

The distribution of income is based main

Question 6

For a given supply curve,the deadweight loss from the imposition of a tax is smaller if demand is more elastic.

Accepted Answer

A) True 
 B)False

Question 7

A key insight of the public choice model is that public policymakers are likely to pursue the public's interest,even if their self-interests conflict with the public interest.

Accepted Answer

A) True 
 B)False

Question 8

An average tax rate is calculated as

Accepted Answer

A) total taxable income × taxes paid. 
B) total taxable income ÷ taxes paid. 
C) taxes paid ÷ total taxable income. 
D) (total taxable income - taxes paid)÷ taxable income. 
A) total taxable income × taxes paid. 
B) total taxable income ÷ taxes paid. 
C) taxes paid ÷ total taxable income. 
D) (total taxable income - taxes paid)÷ taxable income.

Question 9

$$\begin{array} { | c | c | } 
\hline \text { Taxable Income } & \text { Tax Payments } \
\hline \$ 10,000 & \$ 1,000 \
\hline 12,000 & 1,080 \
\hline 16,000 & 1,360 \
\hline 22,000 & 1,760 \
\hline
\end{array}$$ Table 18-8 shows the amount of taxes paid on various levels of income.
-Refer to Table 18-8.The tax system is

Accepted Answer

A) progressive throughout all levels of income. 
B) proportional throughout all levels of income. 
C) regressive throughout all levels of income. 
D) progressive between $10,000 and $12,000 of income and regressive between $12,000 and $22,000. 
A) progressive throughout all levels of income. 
B) proportional throughout all levels of income. 
C) regressive throughout all levels of income. 
D) progressive between $10,000 and $12,000 of income and regressive between $12,000 and $22,000.

Question 10

The political process is more likely to serve the interests of individuals whose preferences are in the middle,rather than individuals with preferences that are much to the left or right of the political center.This statement is best explained by which of the following?

Accepted Answer

A) logrolling 
B) the voting paradox 
C) the Arrow impossibility theorem 
D) the median voter theorem 
A) logrolling 
B) the voting paradox 
C) the Arrow impossibility theorem 
D) the median voter theorem

Question 11

Figure 18-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold

Accepted Answer

A) the deadweight loss is identical under either supply curve. 
B) the deadweight loss is greater under the supply curve S1. 
C) the deadweight loss is greater under the supply curve S0. 
D) there is no deadweight loss since revenue raised is used to fund government projects. 
A) the deadweight loss is identical under either supply curve. 
B) the deadweight loss is greater under the supply curve S1. 
C) the deadweight loss is greater under the supply curve S0. 
D) there is no deadweight loss since revenue raised is used to fund government projects.

Question 12

Explain why it is more difficult to determine the incidence of the corporate income tax than it is to determine the incidence of the tax on gasoline.

Accepted Answer

You can determine the incidence of the g

Question 13

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

Accepted Answer

The voting paradox is the failure of maj

Question 14

The "ability-to-pay" principle of taxation is the normative idea that

Accepted Answer

A) an equitable tax system is one in which high income individuals should bear a greater burden of taxes than low income individuals. 
B) each individual should voluntarily contribute according to her ability to pay taxes. 
C) progressive taxes are more equitable than regressive taxes. 
D) two individuals earning the same income should have equal ability to pay,all else constant. 
A) an equitable tax system is one in which high income individuals should bear a greater burden of taxes than low income individuals. 
B) each individual should voluntarily contribute according to her ability to pay taxes. 
C) progressive taxes are more equitable than regressive taxes. 
D) two individuals earning the same income should have equal ability to pay,all else constant.

Question 15

Absolute poverty measures vary from country to country.For example,in 2015,the poverty line in the United States for a family of four with two children was an annual income of $24,250 but economists often use a much lower threshold income of $1 per day when calculating the rate of poverty in poor countries.How is this absolute poverty measured?

Accepted Answer

A) by comparing the percentage of households living below the poverty line to the total population 
B) by comparing a household's income to the income required to maintain the average standard of living in a society at a particular time 
C) by comparing the amount of goods and services that a household's income can purchase to an objective measure of the amount of income needed to sustain a certain predetermined standard of living 
D) by comparing the amount of goods and services that a household's income can purchase in one country to the amount of goods and services that a household's income can purchase in another country of comparable living standard 
A) by comparing the percentage of households living below the poverty line to the total population 
B) by comparing a household's income to the income required to maintain the average standard of living in a society at a particular time 
C) by comparing the amount of goods and services that a household's income can purchase to an objective measure of the amount of income needed to sustain a certain predetermined standard of living 
D) by comparing the amount of goods and services that a household's income can purchase in one country to the amount of goods and services that a household's income can purchase in another country of comparable living standard

Question 16

What is a Lorenz curve and what is a Gini coefficient?

Accepted Answer

A Lorenz curve is a curve that shows the

Question 17

Figure 18-6 shows the Lorenz curves for Islandia and Syldavia.
-Refer to Figure 18-6.If area X = 2,060,area Y = 240,and area Z= 2,700,calculate the Gini coefficient for Syldavia.

Accepted Answer

A) 0.05 
B) 0.12 
C) 0.46 
D) 0.85 
A) 0.05 
B) 0.12 
C) 0.46 
D) 0.85

Question 18

Tax laws affect

Accepted Answer

A) economic efficiency but not equity. 
B) equity but not economic efficiency. 
C) consumption and production,not efficiency and equity. 
D) both efficiency and equity. 
A) economic efficiency but not equity. 
B) equity but not economic efficiency. 
C) consumption and production,not efficiency and equity. 
D) both efficiency and equity.

Question 19

Which of the following is a consequence of the voting paradox?

Accepted Answer

A) A majority of voters elect a candidate that does not represent the preferences of the voter who is in the political middle. 
B) Politicians support small groups of individuals and firms that benefit from special interest legislation,rather than a much larger group of voters who pay the cost for this legislation. 
C) Individuals and firms who benefit from government actions engage in rent seeking. 
D) The collective preferences of voters are not transitive and voting outcomes are inconsistent. 
A) A majority of voters elect a candidate that does not represent the preferences of the voter who is in the political middle. 
B) Politicians support small groups of individuals and firms that benefit from special interest legislation,rather than a much larger group of voters who pay the cost for this legislation. 
C) Individuals and firms who benefit from government actions engage in rent seeking. 
D) The collective preferences of voters are not transitive and voting outcomes are inconsistent.

Question 20

$\begin{array}{|c|c|c|}
\hline \text { Income Quintile } & \begin{array}{c}
\text { Agraria } \
\text { Percentage of } \
\text { Total Income }
\end{array} & \begin{array}{c}
\text { Urbana } \
\text { Percentage of Total } \
\text { Income }
\end{array} \
\hline \text { Lowest 20\% } & 3 \% & 5 \% \
\hline \text { Second quintile } & 9 \% & 14 \% \
\hline \text { Third quintile } & 14 \% & 20 \% \
\hline \text { Fourth quintile } & 24 \% & 24 \% \
\hline \text { Highest 20\% } & 50 \% & 37 \% \
\hline
\end{array}$
 Table 18-12 shows income distribution data for two countries.Use this data to answer the following questions.
-Refer to Table 18-12.
a.Draw a Lorenz curve for each country.
b.Which country has the more equal distribution of income?
c.Based on the Lorenz curves for the two countries,can you determine which country has the more progressive tax system? Explain your answer.

Accepted Answer

a.See diagram below. @#IMG-DLM& b.Urbana

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

What is meant by the term "rational ignorance"?

What does a Lorenz curve illustrate?

A proportional tax is a tax for which people with lower incomes

Describe the main factors economists believe cause inequality of income.

For a given supply curve,the deadweight loss from the imposition of a tax is smaller if demand is more elastic.

A key insight of the public choice model is that public policymakers are likely to pursue the public's interest,even if their self-interests conflict with the public interest.

An average tax rate is calculated as

Taxable Income Tax Payments \ 10,000 \ 1,000 12,000 1,080 16,000 1,360 22,000 1,760 Table 18-8 shows the amount of taxes paid on various levels of income. -Refer to Table 18-8.The tax system is

The political process is more likely to serve the interests of individuals whose preferences are in the middle,rather than individuals with preferences that are much to the left or right of the political center.This statement is best explained by which of the following?

Figure 18-2 shows a demand curve and two sets of supply curves,one set more elastic than the other. -Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold

Explain why it is more difficult to determine the incidence of the corporate income tax than it is to determine the incidence of the tax on gasoline.

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

The "ability-to-pay" principle of taxation is the normative idea that

What is a Lorenz curve and what is a Gini coefficient?

Figure 18-6 shows the Lorenz curves for Islandia and Syldavia. -Refer to Figure 18-6.If area X = 2,060,area Y = 240,and area Z= 2,700,calculate the Gini coefficient for Syldavia.

Tax laws affect

Which of the following is a consequence of 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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