Deck 20: Taxation and the Public Budget

Question 1

Many tax-funded programs are intended to:

A) decrease surplus.
B) increase income inequality.
C) provide basic human needs.
D) fail due to underfunding.

Answer 1

C

Question 2

The primary intent of the tax on tobacco is to:

A) reduce its consumption.
B) raise government revenues.
C) increase market surplus.
D) support producers of tobacco.

Answer 2

A

Question 3

One reason governments impose taxes is to:

A) raise government revenues.
B) increase consumer spending.
C) spur economic growth.
D) encourage more production.

Answer 3

A

Question 4

In deciding which programs the government should fund with tax revenues there is:

A) perfect consensus before a program is funded.
B) often widespread disagreement.
C) always a popular vote for new programs.
D) the ability of each individual to decide where his tax dollars are spent.

Question 5

This graph depicts a tax being imposed,causing demand to shift from D₁ to D₂.The amount of the tax imposed in the graph shown is equal to:

A) (P₁ P₃).
B) (P₂ P₁).
C) (P₄ P₂).
D) (P₄ P₃).

Question 6

When a tax is present in a market,the price paid by consumers:

A) equals that received by suppliers, but it is higher than the market price in the absence of taxes.
B) is greater than that received by suppliers.
C) is less than that received by suppliers.
D) equals that received by suppliers, but it is lower than the market price in the absence of taxes.

Question 7

Which of the following is not an example of a commonly tax-funded program?

A) Public education.
B) Highways.
C) Housing to those in need.
D) Oil and gas production.

Question 8

An example of a tax-funded program primarily intended to stimulate economic growth is the:

A) maintenance of public highways.
B) provision of housing to those in need.
C) provision of basic healthcare.
D) provision of national defense.

Question 9

This graph depicts a tax being imposed,causing demand to shift from D₁ to D₂.The amount of tax revenue being generated by the tax imposed in the graph shown is:

A) area P₂CAP₄.
B) area P₁DBP₃.
C) area ABC.
D) area ABCD.

Question 10

An example of a tax specifically designed to reduce consumption of a good is a tax on:

A) chocolate.
B) cigarettes.
C) coffee.
D) automobiles.

Question 11

This graph depicts a tax being imposed,causing demand to shift from D₁ to D₂.According to the graph shown,the tax caused:

A) an increase in consumption from Q₁ to Q₂.
B) a decrease in consumption from Q₂ to Q₁.
C) a decrease in the price consumers pay from P₃ to P₁.
D) a decrease in the price the suppliers receive from P₃ to P₁.

Question 12

An example of a tax-funded program intended to provide basic human needs is the provision of:

A) public education.
B) police protection.
C) health care.
D) national defense.

Question 13

When a tax alters consumers' incentives,it is:

A) always the explicit purpose of the policy.
B) sometimes a side effect of a tax designed to raise revenue.
C) called a sin tax.
D) meant to encourage increased consumption.

Question 14

Concepts useful in evaluating the costs and benefits of alternative types of taxes are:

A) efficiency, incidence and scarcity.
B) revenue, scarcity, and shortage.
C) incidence, scarcity, and shortage.
D) efficiency, revenue and incidence.

Question 15

This graph depicts a tax being imposed,causing demand to shift from D₁ to D₂.According to the graph shown,the tax caused:

A) positive government revenue and decreased consumption.
B) zero government revenue and decreased consumption.
C) a transfer of revenue to surplus and increased consumption.
D) positive government revenue and increased consumption.

Question 16

Taxes change behavior for all of the following reasons except they:

A) alter the incentives faced by market participants.
B) drive a wedge between the price paid by buyers and the price received by sellers.
C) result in a lower equilibrium quantity of the good or service being consumed.
D) increase consumer and producer surplus experienced at market.

Question 17

One of the primary aims of taxation is:

A) to increase government revenues.
B) to reduce the equilibrium quantity.
C) to alter the incentives of market participants.
D) All of these are primary goals of taxation.

Question 18

An example of a tax specifically designed to reduce consumption of a good is a tax on:

A) automobiles.
B) dairy products.
C) gasoline.
D) fast food.

Question 19

This graph depicts a tax being imposed,causing demand to shift from D₁ to D₂.The distance AC in the graph shown represents all of the following except the:

A) amount of the tax.
B) difference between what the consumer pays and what the seller receives.
C) "tax wedge."
D) total tax revenue generated for the government by imposing the tax.

Question 20

This graph depicts a tax being imposed,causing demand to shift from D₁ to D₂.The deadweight loss associated with the tax imposed in the graph shown is:

A) equal to area CBD.
B) equal to area ABC.
C) due to the decrease in consumption from Q₁ to Q₂.
D) equal to area P₁DCP₂.

Question 21

In order to minimize deadweight loss generated by taxation,a tax should be placed on goods that are:

A) price elastic.
B) price inelastic.
C) expensive.
D) popular.

Question 22

When a tax is imposed,the surplus that is lost to buyers and sellers but converted into tax revenue is:

A) transferred to others through public programs.
B) lost and considered a cost of taxation.
C) part of deadweight loss.
D) All of these statements are true.

Question 23

Part of the surplus lost to market participants when a tax is imposed is:

A) transferred to others who are affected.
B) transferred to the government in revenues.
C) redistributed from seller to buyer.
D) redistributed from buyer to seller.

Question 24

When a tax is imposed and some of the lost surplus becomes tax revenues,the group that benefits is:

A) consumers.
B) producers.
C) recipients of government services.
D) Only the government benefits from that lost surplus.

Question 25

When a tax is imposed,the surplus that is lost to buyers and sellers but converted into tax revenue is:

A) considered a cost of taxation.
B) part of deadweight loss.
C) the sole source of deadweight loss.
D) not part of deadweight loss.

Question 26

Considering a given increase in price due to a tax,the less price elastic the demand curve is,the:

A) larger the drop in equilibrium quantity.
B) smaller the amount of deadweight loss created.
C) larger the amount of deadweight loss created.
D) more surplus that is transferred to consumers.

Question 27

The total amount of surplus lost due to taxation is:

A) greater than the amount of revenue generated.
B) less than the amount of revenue generated.
C) transferred to the government in the form of tax revenues.
D) used to fund public services.

Question 28

When a tax is imposed,some of the lost surplus becomes tax revenues and the rest is:

A) transferred to consumers.
B) transferred to producers.
C) transferred to recipients of government services.
D) simply lost.

Question 29

A tax in an efficient market:

A) increases efficiency.
B) decreases total surplus.
C) maximizes total surplus.
D) often fails to generate revenue.

Question 30

The deadweight loss a tax causes depends on all of the following except:

A) how responsive buyers and sellers are to a price change.
B) the price elasticity of supply.
C) the price elasticity of demand.
D) who the tax is imposed upon.

Question 31

The difference between the loss of surplus to taxpayers and the tax revenue collected is called:

A) an externality.
B) deadweight loss.
C) consumer surplus.
D) producer surplus.

Question 32

Deadweight loss as a result of taxation occurs because the:

A) quantity of a good that is bought and sold is above the market equilibrium quantity.
B) price that is charged to the consumer is lower than the price the seller receives.
C) price that is charged to the consumer is above the market equilibrium quantity.
D) quantity of a good that is bought and sold is below the market equilibrium quantity.

Question 33

One cost associated with taxes is the: A redistribution of surplus.

A) redistribution of surplus.
B) resulting under consumption.
C) administrative burden.
D) change in relative values.

Question 34

The surplus that is lost and not converted to tax revenue when a tax is imposed is:

A) deadweight loss.
B) value that disappears.
C) not transferred to anyone else.
D) All of these statements are true.

Question 35

The effort to collect and manage revenue from taxes is called:

A) an externality.
B) deadweight loss.
C) administrative burden.
D) transfer of surplus.

Question 36

Considering a given increase in price due to a tax,the more price elastic the supply curve is,the:

A) larger the drop in equilibrium quantity.
B) smaller the drop in equilibrium quantity.
C) smaller the amount of deadweight loss created.
D) less surplus that is transferred to consumers.

Question 37

Deadweight loss is minimized when a tax is levied on something for which people:

A) are not likely to change their behavior much in response to a price change.
B) are very likely to change their behavior in response to a price change.
C) have a large income elasticity of demand.
D) have a small income elasticity of demand.

Question 38

A lump-sum tax:

A) charges the same amount to each taxpayer, regardless of economic behavior or circumstances.
B) refers to annual, rather than quarterly tax payments throughout the year.
C) is tied to spending habits, not income levels.
D) is tied to income levels, not spending habits.

Question 39

One cost associated with the imposition of taxes is:

A) deadweight loss.
B) scarcity.
C) shortages.
D) overconsumption.

Question 40

How much deadweight loss a tax causes is primarily determined by:

A) how responsive buyers and sellers are to a price change.
B) how much tax revenue the government generates.
C) whether the tax is imposed on the buyer or seller.
D) the ability of the government to impose the tax.

Question 41

The federal income tax _____________ compared to a state sales tax.

A) has a lower administrative burden
B) is less efficient
C) is less complex
D) is easier to administer

Question 42

All taxes carry which of the following costs?

A) Time in creating procedures for collecting revenues
B) Enforcing tax payments
C) Managing collected funds
D) All taxes incur all of these costs.

Question 43

In the real world,lump-sum taxes are:

A) perceived as unfair.
B) rarely used.
C) very efficient.
D) All of these statements are true.

Question 44

In general,more efficient taxes have:

A) lower administrative burdens.
B) more complexity.
C) lower revenues given the size of the tax.
D) All of these statements are true.

Question 45

In general,the more complex the tax the:

A) more tax revenues it will generate.
B) more efficient it will be.
C) higher the administrative burden will be.
D) more deadweight loss it will create.

Question 46

For any given tax,imposing a tax in a market with a highly inelastic demand will:

A) cause more deadweight loss than a market with an elastic demand.
B) generate higher revenues than a market with an elastic demand.
C) Both of these statements are true.
D) Neither of these statements is true.

Question 47

A lump-sum tax is:

A) a head tax.
B) the most efficient form of taxation.
C) a tax that charges the same amount to each taxpayer.
D) All of these statements are true.

Question 48

The federal income tax _______________ compared to a state sales tax.

A) has a higher administrative burden
B) has a lower administrative burden
C) is less complex
D) is administered basically the same as

Question 49

A bridge that typically gets 1,000 cars per day is installing a new toll next week of $0.50 per car.The tax revenues generated will be:

A) $1,000.
B) $500.
C) less than $500.
D) between $500 and $1,000.

Question 50

For any given tax,the revenue generated is:

A) larger in markets with price-elastic demand and supply.
B) the same regardless of price elasticity.
C) always maximized in markets with price-elastic demand and supply.
D) smaller in markets with price-elastic demand and supply.

Question 51

Lump-sum taxes reduce the total amount of revenue that can be raised because:

A) people perceive them to be unfair.
B) they have large administrative burdens.
C) the size of the tax is limited by the poorest citizens' ability to pay.
D) they are often applied inefficiently.

Question 52

Imposing taxes in markets where demand and supply are price inelastic:

A) causes less inefficiency than imposing them in price-elastic markets.
B) causes more inefficiency than imposing them in price-elastic markets.
C) causes no inefficiency.
D) cause the same amount of inefficiency because efficiency is unrelated to market elasticity.

Question 53

An example of a lump-sum tax is a(n):

A) income tax.
B) property tax.
C) sales tax.
D) head tax.

Question 54

A new toll of $0.50 per car is in place on a bridge,and 1,000 cars have used the bridge.Total tax revenues would be:

A) $500.
B) $2,000.
C) $1,000.
D) $5,000

Question 55

If the primary goal in implementing a tax is to maximize efficiency and minimize deadweight loss,the government should impose a(n):

A) income tax.
B) lump sum tax.
C) sin tax.
D) proportional tax.

Question 56

The administrative burden of a tax is:

A) the difference between the revenues generated from the tax and the cost of the government program it is supposed to fund.
B) what portion of the revenues come from the government.
C) what portion of the revenues come from the producers versus the consumers.
D) the logistical costs associated with implementing a tax.

Question 57

In the real world,lump-sum taxes are:

A) rarely used.
B) commonly used.
C) applied only to the wealthy in the U.S.
D) very common in non-western nations.

Question 58

The logistical costs associated with implementing a tax are called the:

A) deadweight loss.
B) administrative burden.
C) total surplus.
D) tax revenue.

Question 59

To calculate tax revenue:

A) divide total revenues by the tax per unit.
B) multiply total revenues by the tax per unit.
C) multiply the tax per unit by the number of units of the item being taxed.
D) multiply the tax per unit by the price of the unit being taxed.

Question 60

The administrative burden of taxes is:

A) smallest with a lump-sum tax.
B) the same if the revenue generated is the same for any kind of tax.
C) smaller the larger the amount of the tax.
D) the same across all types of taxes.

Question 61

In general,raising taxes has:

A) increasing returns to revenue.
B) diminishing returns to revenue.
C) increasing then decreasing returns to revenue.
D) constant returns to revenue.

Question 62

When considering the interplay of the price and quantity effect of different tax levels,we realize that:

A) there is one tax level that maximizes tax revenues.
B) tax revenues will continue to increase at all levels where the price effect outweighs the quantity effect.
C) tax revenues will continue to decrease at all levels where the quantity effect outweighs the price effect.
D) All of these statements are true.

Question 63

When raising taxes,the quantity effect tells us that the:

A) government gets more revenue per units sold.
B) higher tax rate causes fewer units to be sold.
C) government gets less revenue per unit sold.
D) higher tax rate causes more units to be supplied.

Question 64

When considering different tax levels,the revenue-maximizing point will be reached more:

A) slowly when demand is more elastic.
B) quickly when demand is more elastic.
C) quickly when demand is less elastic.
D) quickly if demand is unit elastic.

Question 65

The market for cigarettes likely has a:

A) highly elastic demand.
B) slightly elastic demand.
C) highly inelastic demand.
D) slightly inelastic demand.

Question 66

The Laffer curve demonstrates that raising tax rates:

A) increases then decreases tax revenues.
B) always increases tax revenues.
C) always decreases tax revenues.
D) decreases then increases tax revenues.

Question 67

Research shows that people rearrange their income from different sources to reduce their:

A) tax rate.
B) necessary work hours.
C) total bill.
D) tax burden.

Question 68

Taxing the market for alcohol at the same rate as the market for juice will likely:

A) raise more revenue.
B) cause more inefficiency.
C) cause a very big reaction in terms of decreased quantity demanded.
D) produce very similar results in terms of revenue and inefficiency because the rate is the same.

Question 69

When tax rates fall,people tend to:

A) increase the amount they work a great deal.
B) hardly increase the amount they work.
C) hardly decrease the amount they work.
D) decrease the amount they work, although to what degree is still being researched.

Question 70

The _____________ tells us when the government raises taxes,it gets more revenue per unit sold.

A) quantity effect
B) income effect
C) price effect
D) substitution effect

Question 71

The question of how people's behavior changes in response to taxes:

A) has been studied and is well known today.
B) is the subject of much research.
C) was generally accepted and has recently come under examination again.
D) None of these statements is true.

Question 72

It is more likely at lower tax rates than higher tax rates that the:

A) quantity effect will outweigh the price effect.
B) quantity effect will outweigh the income effect.
C) price effect will outweigh the quantity effect.
D) income effect will outweigh the price effect.

Question 73

When raising taxes,the price effect tells us that the:

A) higher tax rate causes fewer units to be sold.
B) government gets more revenue per units sold.
C) government gets less revenue per unit sold.
D) higher tax rate causes more units to be supplied.

Question 74

If the ________ effect is greater than the ___________ effect,a tax cut will increase revenues.

A) price; quantity
B) quantity; income
C) income; price
D) quantity; price

Question 75

Raising taxes:

A) always raises tax revenues.
B) always decreases tax revenues.
C) can sometimes decrease tax revenues.
D) None of these statements is true.

Question 76

If the price effect outweighs the quantity effect,then a tax:

A) increase will raise revenue.
B) decrease will raise revenue.
C) increase will lower revenue.
D) increase will not change revenue.

Question 77

The __________ tells us when the government raises taxes,the higher tax rate causes fewer units to be sold.

A) quantity effect
B) price effect
C) government spending effect
D) quality effect

Question 78

The idea that people change their behavior in response to taxes is

A) highly controversial among economists.
B) accepted by economists, but debated by those in Congress.
C) uncontroversial among economists.
D) None of these statements is true.

Question 79

A $0.50 tax on lemons currently generates $200 in revenues per day.If the tax were increased to $2,the revenues generated would drop to $70.This tells you that in this range of tax rates the:

A) quantity effect outweighs the price effect.
B) quantity effect outweighs the income effect.
C) price effect outweighs the quantity effect.
D) price effect outweighs the income effect.

Question 80

Most research suggests that the elasticity of the labor supply with respect to taxes is:

A) very low for most people.
B) very high for most people.
C) highly variable across people.
D) unpredictable in most settings.