Chapter 10, 11, 12

Today the typical American pays approximately what percent of income in taxes, including all federal, state, and local taxes?

25%

In 1789, the average American paid approximately what percent of income in taxes?

5%

In 1789 the percentage of the average American's income that went to pay taxes was about

5%. Today it is about 25%.

Which of the following statements is correct?

Both equity and efficiency are important goals of the tax system

According to the benefits principle, it is fair for people to pay taxes based on their ability to shoulder the tax burden.

False

Government subsidized scholarships are an example of a government policy aimed at correcting negative externalities associated with education.

False

Most economists believe that a corporate income tax affects the stockholders of a corporation but not its employees or customers.

False

Negative externalities lead markets to produce a smaller quantity of a good than is socially desirable, while positive externalities lead markets to produce a larger quantity of a good than is socially desirable.

False

One person's use of common resources does not reduce the enjoyment other people receive from the resource.

False

Organizers of an outdoor concert in a park surrounded by residential neighborhoods are likely to consider the noise and traffic cost to residential neighborhoods when they assess the financial viability of the concert venture.

False

Tolls are not effective in altering people's incentives to drive during rush hour.

False

A congestion toll imposed on a highway driver to force the driver to take into account the increase in travel time she imposes on all other drivers is an example of internalizing the externality.

True

According to the benefits principle, it is fair for people to pay taxes based on the benefits they receive from the government.

True

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

True

Governments that chose to make endangered elephants private goods have met with more success protecting elephants than governments that chose to make killing elephants illegal.

True

If Dave and Jesse are the only two fishermen in town and neither is bothered by the other's fishing, the lake they fish in is not a common resource.

True

One possible solution to the problem of protecting a common resource is to convert that resource to a private good.

True

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

True

When firms internalize a negative externality, the market supply curve shifts to the left.

True

An externality is an example of

a market failure

The term market failure refers to

a market that fails to allocate resources efficiently.

Governments can improve market outcomes for

both public goods and common resources

Market failure can be caused by

externalities

When goods do not have a price, which of the following primarily ensures that the good is produced?

government

From the time of Benjamin Franklin to the present, the percentage of the average American's income that goes to pay taxes has

has risen from less than 5 percent to about 25 percent.

An externality is the impact of

one person's actions on the well-being of a bystander.

For most goods in an economy, the primary signal that guides the decisions of buyers and sellers is

price

For private goods allocated in markets,

prices guide the decisions of buyers and sellers and these decisions lead to an efficient allocation of resources.

The old lyric "the best things in life are free

refers to goods provided by nature or the government.

In the absence of externalities, the "invisible hand" leads a market to maximize

total benefit to society from that market.