Question 1

What is the United States government's formal definition of the poverty line?

Accepted Answer

A) It is a level of annual income equal to total income in society divided by the population,adjusted for a family of four. 
B) It is a level of annual income equal to the amount of money necessary to purchase the minimal quantity of food required for adequate nutrition. 
C) It is the annual income level below which a household is exempt from taxes. 
D) It is a level of annual income equal to three times the amount of money necessary to purchase the minimal quantity of food required for adequate nutrition.

Question 2

Many economists believe that when the federal government establishes an agency to regulate a particular industry,the regulated firms try to influence the agency even if these actions do not benefit the public.Economists refer to this result of government regulation by which of the following terms?

Accepted Answer

A) regulatory capture 
B) logrolling 
C) special-interest regulation 
D) the regulatory paradox

Question 3

The Arrow impossibility theorem explains

Accepted Answer

A) why there is no system of voting that will consistently represent the underlying preferences of voters. 
B) why government regulation of private markets will always result in a reduction in economic efficiency in these markets. 
C) why voters are always rationally ignorant. 
D) why it is not possible to provide the economically efficient amount of any public good.

Question 4

Figure 18-7 shows the Lorenz curve for a hypothetical country.
-Refer to Figure 18-7.The second lowest 20 percent of households

Accepted Answer

A) earn 12 percent of the society's total income. 
B) earn 16 percent of the society's total income. 
C) earn 28 percent of the society's total income. 
D) earn 40 percent of the society's total income.

Question 5

An example of a payroll tax in the United States is

Accepted Answer

A) Social Security taxes. 
B) taxes on corporate profit. 
C) excise taxes on gasoline. 
D) property taxes on real estate.

Question 6

A situation where a member of Congress votes to approve a bill in exchange for favorable votes from other members on other bills is called

Accepted Answer

A) rent seeking. 
B) logrolling. 
C) regulatory capture. 
D) special interest legislation.

Question 7

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.

Question 8

Which of the following statements refers to rent seeking?

Accepted Answer

A) "Laws passed by the federal government often provide benefits for a small number of individuals.These individuals,in turn,have an incentive to contribute to the campaigns of politicians who pass these laws." 
B) "The federal government should spend more money on programs that help low income citizens and less money on national defense." 
C) "The role of the federal government in the U.S.economy grew significantly after the Great Depression.Government spending and taxes are a much greater proportion of total income today than they were in 1929." 
D) "There is an opportunity cost whenever the federal government spends tax revenue.For example,an additional $1 billion spent on national defense means there will be less revenue for highway construction and maintenance or some other program."

Question 9

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

Accepted Answer

A) True 
 B)False

Question 10

Article Summary
Monthly marijuana sales in Colorado topped $100 million for the first time in August,2015,with $59.2 million in recreational sales and $41.4 million in medical sales.Colorado has levied three types of state taxes on recreational-use marijuana: a 2.9% standard sales tax,a 10% special marijuana sales tax,and a 15% excise tax on wholesale marijuana transfers.The 15% excise tax is earmarked for school construction projects.In August,recreational-use taxes and fees totaled $11.2 million and medical taxes and fees were $2 million,bringing total revenue-to-date for the year to over $86 million.
-Refer to the Article Summary.Suppose the sale of marijuana is legalized in Florida,and the state decides to charge a tax of $50 per ounce on each sale,with the state claiming that retailers will bear the entire burden of this tax.Draw a graph illustrating the situation where retail outlets would bear the entire tax burden of $50 per ounce of marijuana.Explain what would need to be true about the demand for marijuana for retailers to bear the entire burden of this tax,and if this would likely occur if marijuana sales were legalized.

Accepted Answer

The answer of Article Summary
Monthly marijuana sales in Colorado topped...

Question 11

The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called

Accepted Answer

A) the mean (or average)voter theorem. 
B) the voting paradox. 
C) the Arrow impossibility theorem. 
D) the median voter theorem.

Question 12

If you pay $2,000 in taxes on an income of $20,000,and a tax of $3,000 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.

Question 13

Table 18-2
 $$\begin{array} { | c | c | c | c | } 
\hline \text { Policy } & \text { Tom Cotton } & \text { David Vitter } & \text { Patty Murray } \
\hline \text { Homeland security } & 1 \text { st } & \text { 2rd } & \text { 3rd } \
\hline \text { Education } & \text { 2rd } & \text { 3rd } & 1 \text { st } \
\hline \text { Medical research } & \text { 3rd } & 1 \text { st } & \text { 2rd } \
\hline
\end{array}$$
-Refer to Table 18-2.The table above lists three policy alternatives that the U.S.Senate will vote on,along with the ranking of these alternates.The Senate must decide which of these alternatives should receive an additional $1 billion of funding,and there is enough money in the federal budget for only one of these alternatives.If a series of votes is taken in which each pair of alternatives is considered (homeland security and education;homeland security and medical research;education and medical research)which of the following will result from these votes?

Accepted Answer

A) When the vote is between homeland security and education,the Senators will vote for education to receive funding. 
B) The Senators' votes will demonstrate transitivity. 
C) The results will illustrate the voting paradox. 
D) The results from the voting will illustrate the median voter theorem.

Question 14

Between 1980 and 2014,income inequality in the United States has increased in part due to rapid technological change.How does technological change contribute to income inequality?

Accepted Answer

A) Advancements in technology displace skilled and unskilled workers in certain fields,leading to higher unemployment rates. 
B) Technology complements the skills of the well-educated while rendering redundant the labor services of unskilled and low-skilled workers.This causes a decline in the wages of low and unskilled workers relative to other workers. 
C) The opportunity cost of investing in technology is investments in human capital.The resulting decrease in labor's marginal productivity has led to lower wages. 
D) Technological change favors the owners of capital and since high-income individuals tend to own capital,income inequality is further exacerbated.

Question 15

If official poverty statistics for the United States included transfer payments individuals receive from the government,such as Social Security payments and other non-cash benefits such as food stamps

Accepted Answer

A) the poverty rate would be lower. 
B) poverty would be eliminated. 
C) income inequality would be greater. 
D) the poverty rate would be overstated.

Question 16

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 Islandia.

Accepted Answer

A) 0.41 
B) 0.45 
C) 0.70 
D) 0.76

Question 17

From 1970 to 2010,the poverty rate in East Asia rose slightly but the level of poverty in sub-Saharan Africa fell dramatically.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is true?

Accepted Answer

A) If transfer payments such as Social Security payments to the retired and disabled were excluded from official statistics used to estimate the percentage of people with incomes below the poverty line,the amount of poverty in the United States would be much greater. 
B) Because the federal income tax system is progressive,measuring poverty using after-tax incomes results in a higher poverty rate than if poverty is measured using before-tax incomes. 
C) If non-cash benefits such as food stamps and rent subsidies were added to the incomes of low-income families,poverty would be eliminated. 
D) In the United States,income remaining after federal taxes are paid is more equally distributed than income before taxes.

Question 19

$$\begin{array} { | c | c | c | c | } 
\hline & \text { Ivy } & \text { Jasmnine } & \text { Rose } \
\hline \text { Subsidies for educationt } & \text { 2nd } & \text { 3rd } & \text { 1st } \
\hline \text { Research on Alzheimer's } & \text { 3rd } & \text { 1st } & \text { 2nd } \
\hline \text { Increased border security } & \text { 1st } & \text { 2nd } & \text { 3rd } \
\hline
\end{array}$$ 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.
-Refer to Table 18-1.Suppose a series of votes are taken in which each pair of alternatives is considered in turn.If the vote is between allocating funds to research on Alzheimer's and increased border security

Accepted Answer

A) Ivy and Jasmine vote for Alzheimer's research,Rose votes for increased border security,and Alzheimer's research wins. 
B) Ivy and Rose vote for increased border security,Jasmine votes for Alzheimer's research,and increased border security wins. 
C) Jasmine and Rose vote for Alzheimer's research,Ivy votes for increased border security,and Alzheimer's research wins. 
D) Jasmine and Ivy vote for increased border security,Rose votes for Alzheimer's research,and increased border security wins.

Question 20

Some individuals seek to use government action to make themselves better off at the expense of others.The actions of these individuals

Accepted Answer

A) are examples of fraud;but these individuals usually avoid prosecution because of logrolling and rational ignorance. 
B) are examples of rent seeking. 
C) offer proof that Adam Smith's "invisible hand" is not valid. 
D) are evidence of the voting paradox.

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