Econ Chapter 10, questions

A nonlegal market for regulated goods and services

A black market is a what?

Government should not interfere with consumer choices

Consumer sovereignty suggests that what?

Direct actions by the government to control the amount of an activity

Direct regulation is what?

Reduce poverty

Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to do what?

No, government deficits depend upon spending and tax revenue

Government spending accounts for more than 40% of US national income, does this mean that government has been consistently running a budget deficit?

Inequality on one axis and social surplus on the other with a positively sloped function

How would you depict the trade-off between equity and efficiency on a graph?

No, it differs according to how taxes change incentives

Is the deadweight loss of taxation the same for different types of taxes?

Not necessarily, since the burden of the tax depends on price elasticity

Is the entire burden of a tax always borne by those on whom it is imposed?

It is fair because it reduces inequality

Is the equity implication of imposing an estate tax fair?

Laws restricting alcohol purchases, price ceilings and floors, and fishing quotas

List some examples of direct regulation.

Regressive

Lump-sum taxes are what kind of tax?

People do not always know what is best for them, and the government should encourage them to make the right choices

Paternalism is the view that what?

Income tax

Progressive tax example?

Medicare tax

Proportional tax example?

Property tax

Regressive tax example?

Tax revenue exceeds its spending

The government runs a budget surplus when what?

Individual income taxes

The largest source of revenue for the federal government is what?

Misc taxes and fees, such as tolls on roads and public transportation tickets

The largest source of revenue for the state government is what?

Progressive tax system to fund transfer payments

To reduce inequality and poverty in an economy, the government uses a what?

It is inefficient because it reduces investment

What is the efficiency implication of imposing an estate tax?

Corruption

Which of the following is a cost associated with government intervention in an economic system?

To raise revenues to pay for operations

Which of the following is a factor underlying government taxation and spending decisions?

1. The effect of a tax on labor supply depends on the amount of deadweight loss created by the tax. 2. It depends on the normative questions such as how much to tax or how much government intervention is necessary. 3. The effect of a tax on a labor supply depends on the elasticity of labor supply

Why are there two different views on the effect of taxation on labor supply in the US?

1. Raising revenues 2. Redistributing income via transfer payments 3. Financing operations 4. Correcting market failures and externalities

Why does government tax and spend?