econ 202 chapter 5

tax

-statutory incidents on consumers -demand falls by the amount of the tax because @ every quantity purchased consumers have to account for the fact that they have to write check to government for *new demand curve one consumers see *producer surplus - sellers receive *price consumers- price consumers pay

elastic

-tax distorts their decisions and they adjust quite a bit -small change in price changes the number demanded by a lot

A ________ system is one in which households pay the same percentage of their incomes in taxes regardless of their income level. A. regressive B. proportional C. progressive D. complementary

B. proportional

Which of the following is an objective of government taxation? A. Reducing the demand for money in the economy B. Redistribution of funds C. Increasing the supply of money in the economy D. Reducing the growth rate of the economy

B. redistribution of funds

price controls

- regulation of prices - 2 basic flavors - price floors -price ceilings

demand is higher but suppliers don't want to rent out as many places they did before

-Quantity supplied is number that gets rented out -government cannot force to rent out their apartments -the different between quantity demanded and quantity supplied is shortage (more people want apartments then can get them

deadweight loss

-greater when supply and demand are more elastic -comes from trades that never happen because tax wedge -the more elastic more happens after - distortions caused by taxes mean that the use of tax revenue has to have a high value

public finance

study of economics of government policies and taxes

financing its own operations

actual running of government

average total rate

change taxes/ change income

agricultural products

common place to use for price floors

missallocation

could've gotten by without one and someone else really needs it won't be able to get it

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________. A. Pigouvian tax B. Pigouvian subsidy C. price ceiling D. price floor

D. price floor

statutory incidents

-who write the check - tax, or economic incidents, has nothing to do with who the government says write the check and everything to do with the law of supply and demand

If you pay a constant percentage of your taxable income in taxes, the tax is A. regressive. B. progressive. C. random. D. proportional.

D. proportional.

why we have taxes

1. raising revenue 2. transfer payments 3. financijnging its own operations 4. correcting market failures

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. The elasticity of demand for the item that is taxed. B. whether the tax is based on the ability-to-pay principle or the benefits-received principle C. whether the tax is imposed by the federal government or a state government D. 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

A. The elasticity of demand for the item that is taxed.

When the government taxes a good or service, it A. affects the market equilibrium for that good or service. B. eliminates the deadweight loss associated with the good or service. C. increases consumer surplus for the good or service. D. increases producer surplus for the good or service.

A. affects the market equilibrium for that good or service.

A price floor is the ________. A. lower limit on the price of a good B. minimum price that a seller accepts for a good C. upper limit on the price of a good D. maximum willingness to pay for a good

A. lower limit on the price of a good

To affect the market outcome, a price ceiling A. must be set below the equilibrium price. B. must be set below the legal price. C. must be set below the black market price. D. must be set below the price floor.

A. must be set below the equilibrium price

In order to be binding, a price ceiling A. must lie below the free market equilibrium price. B. must coincide with the free market equilibrium price. C. must lie above the free market equilibrium price. D. must be high enough for firms to earn a profit.

A. must lie below the free market equilibrium price.

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control A. puts a legal limit on the rent that landlords can charge for an apartment. B. only applies to those apartments which are owned and rented out by the local government. C. is a price floor which sets a minimum rent for apartments. D. is a government policy which limits apartment rental to those people whose incomes are less than $50,000 per year.

A. puts a legal limit on the rent that landlords can charge for an apartment.

If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 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.

A. regressive.

The demand curve for pizza in Foodieland is vertical. If a tax is imposed on each pizza bought, ________. A. the burden of the tax will fall entirely on the buyers B. the deadweight loss due to taxation will be large C. the tax incidence on the sellers will be higher than that on the buyers D. the burden of the tax will fall entirely on the sellers

A. the burden of the tax will fall entirely on the buyers

The corporate income tax is ultimately paid by all of the following except A. the corporation's debtors in the form of lower rates of return on the corporation's bonds. B. employees in the form of lower wages. C. customers in the form of higher prices. D. owners of the corporation.

A. the corporation's debtors in the form of lower rates of return on the corporation's bonds.

The deadweight loss of taxation on a good is higher if ________. A. the demand or the supply of the good is relatively price elastic B. there is only one seller in the market C. a progressive tax system is practiced D. a low rate of tax is imposed on the sale of the good

A. the demand or the supply of the good is relatively price elastic

The burden of a tax falls entirely on buyers if ________. A. the price elasticity of demand is zero (perfectly inelastic) B. the income elasticity of demand is high C. the price elasticity of demand is greater than 1 D. the price elasticity of supply is unitary elastic

A. the price elasticity of demand is zero (perfectly inelastic)

With an increase in the demand for a good, if prices are not allowed to increase: A. there will be no incentive for firms to increase the quantity supplied of the good. B. social surplus will be maintained at maximum. C. there will be an increase in overall efficiency in the market. D. a surplus will occur in the market.

A. there will be no incentive for firms to increase the quantity supplied of the good.

The incidence of a per-unit tax on a good is identical for buyers and sellers of the good if: A. the elasticity of market demand exceeds the elasticity of market supply. B. the market supply curve is flatter than the market demand curve. C. the buyers and sellers of the good are equally sensitive to price changes. D. the market demand curve is horizontal.

C. the buyers and sellers of the good are equally sensitive to price changes.

Suppose that in Canada the government places a $1,500 tax on the buyers of new snowmobiles. After the purchase of a new snowmobile, a buyer must pay the government $1,500. How would the imposition of the tax on buyers be illustrated in a graph? A. The tax will shift the supply curve to the left by $1,500. B. The tax will shift the demand curve to the left by $1,500. C. The tax will shift both the demand and supply curves to the right by $1,500. D. The tax will shift the demand curve to the right by $1,500.

B. The tax will shift the demand curve to the left by $1,500.

Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to over $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why? A. Government intervened to prevent lines. B. There was no price control on gasoline at the time. C. Government intervened to enact gasoline rations.

B. There was no price control on gasoline at the time.

Rent control is an example of A. a black market. B. a price ceiling. C. a price floor. D. a subsidy for low-skilled workers.

B. a price ceiling

Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given? A. consumer surplus increases. B. consumer surplus decreases. C. Indeterminate with the given information.

B. consumer surplus decreases.

If a tax is imposed on each unit of a good purchased, ________. A. the supply curve shifts to the left B. the demand curve shifts to the left C. the demand curve shifts to the right D. the supply curve shifts to the right

B. the demand curve shifts to the left

A price ceiling does NOT lead to a deadweight loss if ________. A. the equilibrium market price lies above the price ceiling B. the equilibrium market price lies below the price ceiling C. the price elasticity of market demand is greater than 1 D. the price elasticity of market supply is greater than 1

B. the equilibrium market price lies below the price ceiling

A price ceiling refers to ________. A. the highest price that a consumer is willing to pay for a good B. the upper limit on the price of a good C. the lower limit on the price of a good D. the lowest price that a producer is willing to accept for a good

B. the upper limit on the price of a good

To affect the market outcome, a price ceiling A. must be set below the black market price. B. must be set below the equilibrium price. C. must be set below the price floor. D. must be set below the legal price.

B.must be set below the equilibrium price

Suppose the government imposes an 8 percent 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.

C. The tax will be borne partly by consumers and partly by sellers.

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50, ________. A. the quantity demanded of milk will fall B. the quantity of milk supplied will increase C. a shortage of milk will occur in the market D. there will be an excess supply of milk in the market

C. a shortage of milk will occur in the market

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the A. demand curve is downward sloping and the supply curve is upward sloping. B. demand curve for imported champagne is horizontal. C. demand curve for imported champagne is vertical. D. supply curve for imported champagne is vertical.

C. demand curve for imported champagne is vertical.

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville? A. Indeterminate with the given information. B. Freedonia C. Meterville

C. meterville

In order to be binding, a price ceiling A. must be high enough for firms to earn a profit. B. must coincide with the free market equilibrium price. C. must lie below the free market equilibrium price. D. must lie above the free market equilibrium price.

C. must lie below the free market equilibrium price.

If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is A. regressive. B. unfair. C. progressive. D. proportional.

C. progressive

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control A.is a price floor which sets a minimum rent for apartments. B. only applies to those apartments which are owned and rented out by the local government. C. puts a legal limit on the rent that landlords can charge for an apartment. D. is a government policy which limits apartment rental to those people whose incomes are less than $50,000 per year.

C. puts a legal limit on the rent that landlords can charge for an apartment.

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

C. the fraction of each additional dollar of income that must be paid in taxes.

If the sellers of a good are taxed for each unit sold, ________. A. the price that buyers need to pay falls B. the price that sellers receive increases C. a larger quantity of the good is sold D. a smaller quantity of the good is sold

D. a smaller quantity of the good is sold

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? A. Market efficiency will increase. B. Consumer surplus will increase. C. Producer surplus will increase. D. Deadweight loss will increase.

D. deadweight loss will increase

In a city with rent-controlled apartments, all of the following are true except A. apartments are often in shorter supply than they would be without rent control. B. apartments usually rent for rates lower than the market rate. C. it usually takes more time to find an apartment than it would without rent control. D. landlords have an incentive to rent more apartments than they would without rent control.

D. landlords have an incentive to rent more apartments than they would without rent control.

In a regressive tax system, ________. A. all households pay the same amount of taxes irrespective of their income B. high income households pay a higher percentage of their income as taxes C. all households pay the same percentage of their income as taxes D. low income households pay a higher percentage of their income as taxes

D. low income households pay a higher percentage of their income as taxes

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? A. Quantity demanded will increase, quantity supplied will decrease, and a shortage will result. B. Quantity demanded will decrease, quantity supplied will increase, and a shortage will result. C. Quantity demanded will increase, quantity supplied will decrease, and a surplus will result. D. Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.

D. quantity demanded will decrease, quantity supplied will increase, and a surplus will result

The tax incidence on buyers is higher if ________. A. the buyers and sellers of a good are equally sensitive to price changes B. the number of sellers in a market is larger than the number of buyers C. the elasticity of the market demand curve is higher than the elasticity of the market supply curve D. the elasticity of the market supply curve is higher than the elasticity of the market demand curve

D. the elasticity of the market supply curve is higher than the elasticity of the market demand curve

If a tax is imposed on a good,________. A. consumer surplus increases B the quantity of the good traded in the market increases C. producer surplus increases D. the equilibrium quantity of the good in the market falls

D. the equilibrium quantity of the good in the market falls

Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. A. The first household B. The second household C. The third household D. The fourth household

D. the fourth household

In a progressive tax system, ________. A. the average tax rate equals the marginal tax rate B. the average tax rate is equal for all taxpayers C. the average tax rate exceeds the marginal tax rate D. the marginal tax rate exceeds the average tax rate

D. the marginal tax rate exceeds the average tax rate

price ceiling must be set ____________ equilibrium price

below

price floor

demand companies looking for workers supply: workers themselves who are selling their labor

price controls

destroy the incentive value of prices and call distortions in markets

producer surplus

difference between what sellers were WT sell at and what the price they were able to get (area between supply curve and price)

Consumer surplus

different people were WTP and the amount they have to pay (area between demand curve and price)

taxes affect

efficiency

The division of the burden of a tax between buyers and sellers in a market is called tax allocation. true or false

false

The person or firm that pays a tax bears the burden of the tax. true or false

false

when have higher wage

going to have more supply

price distortion

government revenue not part of deadweight loss transfers (who gets/who pays, don't get destroyed)

proportional tax code

has constant average rates

regressive tax

has decreasing average rates

progressive tax

increasing average rates

corporate income taxes

levied on the profits of corporations -economic incidence: made up of only people -only people can bare a tax

price ceilings

maximum price above which its illegal for producers to sell to consumers

correcting market failures

might not get optimal amount

3-5% of workers paid at

minimum wage

who is negatively affected

minorities and drop outs

laws against price gouging after___________________________

natural disasters

government primarily uses individual tax

once a year

payroll taxes which fund transfer programs like social security come directly out of

pay check

states use a combination of income/sales taxes

percentages added to cost of item

who is affected

poverty

price floors

price be no less than a certain level; it's a minimum price ex. minimum wage

price ceilings

price be no more than a certain price, price maximum ex. rent control

local governments rely on

property taxes

transfer payments

redistribute income

relatively inelastic

side of the market bares more of the incidence (economic incidence) -whoever reacts less to price wedge ends up paying more of the tex -whoever reacts more to price change pays less

productive desirable, desirable changes

someone who wants a job at a wage below the legal minimum and someone wants to give them a job but government says thats illegal

inelastic

supply is fairly ineleastic

Quantity demanded will be lower because don't want to higher at

those wages

raising revenues

to fund programs that might not be easily provided by markets (ex. defense and education)

A price ceiling is a legally determined maximum price that sellers may charge. true or false

true

Rent control is an example of a price ceiling. true or false

true

high minimum job wages lead o

unemployment