Deck 16: The Distribution of Income and Social Policy

Question 1

All of the following occur whenever a government taxes a product except

A)the quantity consumed of that product falls.
B)the price of that product rises.
C)the marginal benefit of the last unit sold exceeds the marginal cost of producing it.
D)there will be no excess burden if the government's tax revenue is sufficiently large to offset the deadweight loss.

Answer 1

D

Question 2

A tax bracket is

A)the per cent of taxable income paid in taxes at a specific income bracket.
B)the income range within which a particular tax rate applies.
C)the type of tax structure for which a range of taxes applies.
D)the range,from the high to the low tax rate,of a particular type of tax.

Answer 2

B

Question 3

If,as your taxable income decreases,you pay a smaller percentage of your taxable income in taxes,then the tax is

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

Answer 3

C

Question 4

A marginal tax rate is

A)the fraction of income that must be paid in taxes.
B)the fraction of each additional dollar of income that must be paid in taxes.
C)the incremental income one must earn to offset each additional dollar of tax.
D)the ratio of a change in income to a change in taxes paid.

Question 5

If you pay $2000 in taxes on an income of $20 000,and a tax of $3000 on an income of $30 000,then over this range of income the tax is

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

Question 6

Exemptions and deductions are used

A)to add to taxes that must be paid.
B)by taxpayers to reduce the amount of income subject to tax.
C)to determine the type of tax structure.
D)to determine what items are subject to sales taxes.

Question 7

A personal exemption refers to

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 8

If you pay a constant percentage of your taxable income in taxes,the tax is

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

Question 9

An average tax rate is calculated as

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 10

If the marginal tax rate is equal to the average tax rate as taxable income increases,the tax structure is

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

Question 11

Policymakers focus on marginal tax rate changes when making changes in the tax code because the marginal tax rate

A)determines how tax revenue will change as national income increases.
B)affects people's willingness to work,save,and invest.
C)always equals the average tax rate,which is harder to measure.
D)determines how much revenue the government will have to spend.

Question 12

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

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 13

If,as your taxable income decreases,you pay a larger percentage of your taxable income in taxes,then the tax is

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

Question 14

A marginal tax rate is calculated as

A)total taxable income ÷ by taxes paid.
B)taxes paid ÷ total taxable income.
C)change in taxes paid ÷ the change in total taxable income.
D)change in taxable income ÷ change in taxes paid.

Question 15

If you pay $2000 in taxes on an income of $20 000,and a tax of $3500 on an income of $30 000,then over this range of income the tax is

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

Question 16

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

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

Question 17

The federal corporate income tax is

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

Question 18

If you pay $2000 in taxes on an income of $20 000,and a tax of $2700 on an income of $30 000,then over this range of income the tax is

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

Question 19

Petrol taxes that are typically used for highway construction and maintenance are consistent with which of the following principles of taxation?

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

Question 20

If the marginal tax rate is less than the average tax rate as taxable income increases,the tax structure is

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

Question 21

'Sin taxes,' such as taxes on alcoholic beverages,are intended to

A)increase the amount of the products supplied.
B)generate money to subsidise production of the products taxed.
C)reduce the quantity demanded.
D)generate funds to aid in the medical care of those harmed by the product.

Question 22

An income tax system is ________ if marginal tax rates increase as income increases.

A)progressive
B)regressive
C)efficient
D)equitable

Question 23

The horizontal-equity principle of taxation is not easy to use in practice because

A)some people engage in rent seeking to reduce their taxes below the level other people pay.
B)people can use tax loopholes to reduce their incomes below the incomes of other taxpayers.
C)different people receive different levels of government benefits even if their incomes are the same.
D)it is difficult to determine whether people are in the same economic situation.

Question 24

The government of Silverado raises revenue through a general income tax paid by all its residents to operate the city's marina.The marina is used by private boat owners.This method of raising revenue to operate the marina is

A)consistent with the benefits-received principle.
B)consistent with the ability-to-pay principle.
C)inconsistent with the benefits-received principle.
D)inconsistent with the ability-to-pay principle.

Question 25

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

A)pay a lower percentage of their incomes in tax than do people with higher incomes.
B)pay a higher 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)do not have to pay unless their incomes exceeds a certain amount.

Question 26

The excess burden of a tax

A)measures the efficiency loss to the economy that results from a tax,causing a reduction in the quantity of goods and services produced.
B)is measured by the administrative costs required to implement a tax system.
C)is a measure of the hardship imposed on low-income individuals in a society.
D)is a measure of the foregone consumption as a result of having to pay taxes.

Question 27

Vertical-equity is most closely associated with which of the following goals or principles?

A)the horizontal-equity principle
B)the goal of economic efficiency
C)the goal of attaining social objectives
D)the ability-to-pay principle

Question 28

Since lower-income people spend a larger proportion of their incomes on groceries than do higher-income people,if grocery stores were required by law to charge a 10-cent fee for disposable bags,this fee could be considered

A)a proportional tax.
B)a progressive tax.
C)a regressive tax.
D)an income tax.

Question 29

Consider a public good such as fire protection services.Rich people may benefit more than the poor from such a service because rich people stand to lose more from a fire that destroys property.In this case

A)the ability-to-pay principle may support the rich paying more taxes than the poor,but not the benefits-received principle.
B)the benefits-received principle may support the rich paying more taxes than the poor,but not the ability-to-pay principle.
C)both the benefits-received and the ability-to-pay principles may support the rich paying more taxes than the poor.
D)neither the benefits-received nor the ability-to-pay principles may support the rich paying more taxes than the poor.

Question 30

In reference to the federal income tax system,a tax bracket is

A)the estimated amount of federal income tax firms withhold from their employees' paychecks.
B)the formula the federal government uses to determine the dollar amount of the personal exemption and the amounts taxpayers are allowed for deductions from their incomes.
C)used to determine the average tax rate.
D)the income range within which a tax rate applies.

Question 31

According to the benefits-received principle of taxation,

A)individuals who receive the benefits from a government program should pay the taxes that support the program.
B)because high income individuals receive the most benefits from government programs,they should pay more taxes than lower income individuals.
C)people in the same economic situation should bear an equal share of the tax burden.
D)the benefits of government programs such as national defense are shared equally by all people;therefore,the burden of paying for these programs should be shared equally.

Question 32

The average tax rate is calculated as

A)total income divided by the total tax paid.
B)the change in total tax paid divided by the change in income.
C)total tax paid divided by total income.
D)the change in income divided by the change in total tax paid.

Question 33

The term 'payroll taxes' is often used to refer to

A)individual income taxes that are withheld from paychecks.
B)corporate income taxes.
C)Social Security and Medicare taxes.
D)sales taxes.

Question 34

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

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

Question 35

The marginal tax rate is

A)the amount of taxes paid as a percentage of income.
B)the amount of per-capita taxes paid.
C)the amount of taxes paid as a percentage of gross domestic product (GDP).
D)the fraction of each additional dollar of income that must be paid in taxes.

Question 36

According to the horizontal-equity principle of taxation,

A)individuals who receive the benefits of a good or service should bear a greater share of the tax burden.
B)individuals who are most able to pay should bear a greater share of the tax burden.
C)people in the same economic situation should be treated equally.
D)individuals who are willing to bear a greater share of the tax burden should be compensated with nonmonetary benefits.

Question 37

According to the ability-to-pay principle of taxation,

A)individuals who receive the benefit of a good or service should bear a greater share of the tax burden.
B)it is fair to expect a greater share of the tax burden to be borne by people who have a greater ability to pay.
C)people in the same economic situation should bear an equal share of the tax burden.
D)individuals who are willing to bear a greater share of the tax burden should be compensated with nonmonetary benefits.

Question 38

When considering changes in tax policy,economists usually focus on

A)the average tax rate.
B)the marginal tax rate.
C)people's willingness to pay taxes.
D)people's ability to pay taxes.

Question 39

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

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 40

The federal government and some state governments levy taxes on specific goods such as petrol,cigarettes and beer.These are known as

A)sales taxes.
B)sin taxes.
C)specific taxes.
D)excise taxes.

Question 41

If your income is $92 000 and you pay taxes of $19 475,what is your average tax rate? Show your work.

Question 42

According to the benefits-received principle,those who receive the benefits from a government program should pay the taxes that support the program.

Question 43

Horizontal equity means that two people in identical economic situations should pay the same amount of taxes.

Question 44

What is the difference between a marginal tax rate and an average tax rate? Which is more important in determining the impact of the tax system on economic behaviour?

Question 45

Figure 16-1
Refer to Figure 16-1.Area B + C + F + G represents

A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.

Question 46

Horizontal equity is achieved when taxes are collected from those who benefit from the government expenditure of the tax revenue.

Question 47

Figure 16-1
Refer to Figure 16-1.Of the tax revenue collected by the government,the portion borne by producers is represented by the area

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

Question 48

If the marginal tax rate is greater than the average tax rate,the tax structure is described as regressive.

Question 49

Exempting food purchases from sales tax is consistent with the ability-to-pay principle,although not necessarily consistent with vertical equity.

Question 50

Last year,Anthony Millanti earned exactly $30 000 of taxable income.Assume that the income tax system used to determine Anthony's tax liability is progressive.The table below lists the tax brackets and the marginal tax rates that apply to each bracket.
a.Draw a new table that lists the amounts of income tax that Anthony is obligated to pay for each tax bracket,and the total tax he owes the government.(Assume that there are no allowable tax deductions,tax credits,personal exemptions or any other deductions that Anthony can use to reduce his tax liability).
b.Determine Anthony's average tax rate.

Question 51

Figure 16-1
Refer to Figure 16-1.The sales tax revenue collected by the government is represented by the area

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

Question 52

If you pay $14 000 in taxes on an income of $125 000,and $17 400 in taxes on an income of $144000,what is your marginal tax rate? Show your work.

Question 53

If your income is $40 000 and you pay taxes of $4650,what is your average tax rate? Show your work.

Question 54

The actual division of the burden of a tax is called

A)tax credit.
B)tax incidence.
C)excess burden.
D)tax dispersion.

Question 55

Suppose the government wants to finance housing for low-income families by placing a tax on the purchase of luxury homes.Assume the government defines a luxury home as a home that is purchased for at least $1 million.This tax is consistent with the

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

Question 56

Figure 16-1
Refer to Figure 16-1.The excess burden of the tax is represented by the area

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

Question 57

Suppose the government imposes an 8 per cent sales tax on clothing items and the tax is levied on sellers.Who pays for the tax in this situation? (Assume that the demand curve is downward sloping and that the supply curve is upward sloping. )

A)The tax is borne entirely by the sellers.
B)The sellers will pass on the entire sales tax to consumers,and therefore the consumers bear the tax.
C)The tax will be borne partly by consumers and partly by sellers.
D)It is not possible to answer the question without information on price elasticities.

Question 58

Figure 16-1
Refer to Figure 16-1.Area B + C represents

A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.

Question 59

Figure 16-1
Refer to Figure 16-1.Of the tax revenue collected by the government,the portion borne by consumers is represented by the area

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

Question 60

If you pay $3000 in taxes on an income of $28 000,and $4450 in taxes on an income of $38 000,what is your marginal tax rate? Show your work.

Question 61

The corporate income tax is ultimately paid by all of the following except

A)owners of the corporation.
B)the corporation's debtors in the form of lower rates of return on the corporation's bonds.
C)customers in the form of higher prices.
D)employees in the form of lower wages.

Question 62

How would the elimination of a sales tax affect the market for a product that had been subject to the tax?

A)The demand for the product would rise and the equilibrium price would fall by the amount of the tax.
B)The equilibrium price for the product would fall by less than the amount of the tax.
C)The reduction in government revenue from the tax would be made up by an increase in property taxes.
D)The supply of the product would become more elastic.

Question 63

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the producer's burden of the tax

A)is P_a - P_d under either supply curve.
B)is P_b - P_e under either supply curve.
C)is P_a - P_d if the supply curve is S₀ and P_b - P_e if the supply curve is S₁.
D)is P_c - P_d if the supply curve is S₀ and P_c - P_e if the supply curve is S₁.

Question 64

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the producer's burden of the tax

A)is greater under the more elastic supply curve S₀.
B)is greater under the less elastic supply curve S₀.
C)is greater under the less elastic supply curve S₁.
D)is the same under either supply curve because there is a single demand curve that captures buyers' market behaviour.

Question 65

When the demand for a product is less elastic than the supply,

A)consumers pay the majority of the tax on the product.
B)firms pay the majority of the tax on the product.
C)firms pay the entire tax on the product.
D)consumers pay the entire tax on the product.

Question 66

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,

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 67

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the government's revenue from the tax is represented by the area

A)(P_aP_c × Q_a)if the supply curve is S₀ and (P_bP_c × Q_b)if the supply curve is S₁.
B)(P_aP_d × Q_a)if the supply curve is S₀ and (P_bP_e × Q_b)if the supply curve is S₁.
C)(P_aP_e × Q_a)under either supply curve.
D)(P_bP_e × Q_b)under either supply curve.

Question 68

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the consumer's burden of the tax

A)is greater under the more elastic supply curve S₀.
B)is greater under the less elastic supply curve S₀.
C)is greater under the less elastic supply curve S₁.
D)is the same under either supply curve because there is a single demand curve that captures buyers' market behaviour.

Question 69

Figure 16-1
Refer to Figure 16-1.Area F + G represents

A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.

Question 70

Which of the following statements concerning the federal corporate income tax is true?

A)It is an efficient tax because it imposes a small excess burden relative to the tax revenue it raises.
B)The incidence of the corporate income tax can be determined by using demand and supply analysis.
C)Determining the incidence of the corporate income tax is complicated because it is not certain how corporations respond to the tax.
D)The corporate income tax is an example of the benefits-received principle.

Question 71

Consider the following methods of taxing a corporation's income:
A.A flat tax,as opposed to a progressive tax,is levied on corporate profits.
B.A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits.The shareholder would then be required to include this amount as taxable income for her personal income tax.The corporation does not pay a tax.
C.A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive,tax free,corporate dividends and capital gains.
Which of the methods above would avoid double taxation?

A)a,b,and c
B)a and b only
C)a and c only
D)b and c only

Question 72

There is a difference between who is legally required to send a tax payment to the government and who bears the burden of the tax.Which of the following would have the most impact on who bears the burden of an excise tax?

A)whether the tax is imposed by the federal government or a state government
B)whether the tax is based on the ability-to-pay principle or the benefits-received principle
C)The motive for the tax.If the tax is designed to raise revenue,more of the burden will fall on firms.If the tax is designed to achieve a social objective (for example,to discourage smoking)more of the burden will fall on consumers.
D)the elasticity of demand for the item that is taxed

Question 73

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the consumer's burden of the tax

A)is P_a - P_c under either supply curve.
B)is P_b - P_c under either supply curve.
C)is P_a - P_c if the supply curve is S₀ and P_b - P_c if the supply curve is S₁.
D)is P_a - P_d if the supply curve is S₀ and P_b - P_e if the supply curve is S₁.

Question 74

Figure 16-1
Refer to Figure 16-1.Area E + H represents

A)the portion of sales tax revenue borne by consumers.
B)the portion of sales tax revenue borne by producers.
C)the excess burden of the sales tax.
D)sales tax revenue collected by the government.

Question 75

Most economists agree that some of the burden of the corporate income tax

A)is reduced because the tax is progressive.
B)is shared by the federal government.
C)is reduced because the tax is used to attain a social objective.
D)is passed on to consumers in the form of higher prices.

Question 76

Economists argue that the corporate income tax is an example of a tax with a high deadweight loss because

A)some of the burden of the tax is passed on to consumers in the form of higher prices.
B)it discourages corporations from undertaking capital investments to enhance market competitiveness.
C)taxing a corporation's income amounts to double taxing the earnings on individual shareholders' investments in corporations.
D)it encourages corporations to seek ways to evade taxes.

Question 77

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,what is the size of the deadweight loss,if there is any?

A)the area adc if the supply curve is S₀ and the area bec if the supply curve is S₁
B)the area afcd if the supply curve is S₀ and the area bfce if the supply curve is S₁
C)the area becf under either supply curve
D)There is no deadweight loss;revenue raised is used to fund government projects.

Question 78

When the demand for a product is more elastic than the supply,

A)consumers pay the majority of the tax on the product.
B)consumers pay the entire tax on the product.
C)firms pay the majority of the tax on the product.
D)firms pay the entire tax on the product.

Question 79

The term tax incidence refers to

A)the degree of progression of a tax.
B)the actual division of the burden of a tax between buyers and sellers in a market.
C)the amount of revenue government collects from a tax imposed on a good or service.
D)whether the burden of a tax rests more heavily on those with higher incomes or those with lower incomes.

Question 80

Figure 16-2 Figure 16-2 shows a demand curve and two sets of supply curves,one set more elastic than the other.
Refer to Figure 16-2.If the government imposes an excise tax of $1.00 on every unit sold,the government's revenue from the tax

A)is larger if the supply curve is S₀.
B)is larger if the supply curve is S₁.
C)is identical under either supply curve.
D)is not maximised.