econ chapter 7

If personal income up to and including $30,000 is not taxed, income of $30,001 to $60,000 is taxed at 10%, and income over $60,000 is taxed at 25%, then a family earning an income of $100,000 will pay _____ in personal taxes. $25,000 $6,000 $10,000 $13,000

$13,000

Which of the following statements in CORRECT? a. If the government can make the tax system fairer without additional inefficiency, then the existing tax system is perfectly designed. b. If the government can make the tax system fairer without additional inefficiency, it should do so to maximize equity. c. There is no trade-off between equity and efficiency in the tax system. d. If the government can make the tax system fairer without additional inefficiency, it should seek to maximize equity at the expense of efficiency.

If the government can make the tax system fairer without additional inefficiency, it should do so to maximize equity

You have to pay a fee every time you use your community swimming pool. This is an example of the _____ principle. regressive tax ability-to-pay progressive tax benefits

benefits

An excise tax is levied on suppliers. The incidence of the tax: - is typically on the consumer more than the producer. - is typically split equally between the producer and the consumer. - is typically on the producer more than the consumer. - cannot be determined without more information.

cannot be determined without more information

If the government levies an excise tax in a market whose demand curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____. consumers; the tax revenue producers; the tax revenue consumers; zero producers; zero

consumers; zero

Suppose the government imposes a $4 per month excise tax on cable TV. If the demand for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly elastic), then the price of cable TV will: remain constant. increase by more than $4. increase by exactly $4. increase by less than $4.

increase by exactly $4

Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) elastic, then the price of cable TV will: increase by less than $4. increase by exactly $4. remain constant. increase by more than $4.

increase by less than $4

If demand and supply are both very elastic, a decrease in the rate of an excise tax will likely: decrease government revenue. not affect government revenue. make demand and supply both inelastic. increase government revenue.

increase government revenue

Which of the following taxes is the largest source of government revenue? individual income death sales property

individual income

As part of an antiobesity program, the government levies an excise tax on high-fat foods. We expect consumers to pay almost all of this tax if demand is _____ and supply is _____. elastic; inelastic inelastic; inelastic inelastic; elastic elastic; elastic

inelastic; elastic

If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall on goods for which the supply is _____ and the demand is _____. elastic; inelastic inelastic; inelastic inelastic; elastic elastic; elastic

inelastic; inelastic

A tax system _____ when it minimizes the direct and indirect costs to the economy of tax collection. is efficient is in equilibrium has no deadweight loss is equitable

is efficient

Given any upward-sloping supply curve for a good, the more inelastic the demand curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax. less; smaller more; larger less; larger more; smaller

less; smaller

price paid - equilibrium price =

loss of consumer surplus

equilibrium price - price received =

loss of producer surplus

U.S. federal taxes are generally _____, while state and local taxes are generally _____. regressive; progressive regressive; regressive progressive; regressive progressive; progressive

progressive; regressive

If the marginal tax rate equals the average tax rate, the tax system is: progressive. regressive. proportional. degressive.

proportional

The amount of tax levied per unit of good or service is called the tax: incidence. revenue. surplus. rate.

rate

The incidence of a tax: -refers to who writes the check to the government. -is a measure of the deadweight loss from the tax. -is a measure of the revenue the government receives from it. -refers to how much of the tax is actually paid by consumers and producers.

refers to how much of the tax is actually paid by consumers and producers

A tax of $15 on an income of $200, $10 on an income of $300, and $8 on an income of $400 is: regressive. proportional. constant-rate. progressive.

regressive

Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that this tax is: proportional. equitable. progressive. regressive.

regressive

If the marginal tax rate is less than the average tax rate, the tax system is: progressive. degressive. proportional. regressive.

regressive

Sales taxes are considered to be: degressive. progressive. regressive. proportional.

regressive

Suppose Governor Meridias initiates a payroll tax of 10% on all income up to $50,000. Any income above $50,000 is not taxed. This payroll tax will be: progressive. structural. regressive. proportional.

regressive

The government imposes a tax of $1,000 per household to fund a new public swimming pool. This tax is: progressive. proportional. regressive. flat.

regressive

If the government decides to impose a $700 tax on U.S. citizens vacationing abroad, then the deadweight loss from this tax will be: zero. relatively large. relatively small. absorbed by foreign governments.

relatively large

Assume the same upward supply curve for each of the following goods. Considering demand only, a tax on _____ would result in the largest deadweight loss. medicine gasoline restaurant meals tobacco

restaurant meals

A regressive tax: -rises less than in proportion to income. -takes a higher percentage of income as income rises. -takes a larger share of the income of high-income taxpayers than of low-income taxpayers. -takes a fixed percentage of income regardless of the taxpayer's level of income.

rises less than in proportion to income

An excise tax that the government collects from the producers of a good: shifts the supply curve downward. shifts the supply curve upward. reduces revenue for the government. has an effect similar to that of a tax subsidy.

shifts the supply curve upward

A progressive tax: - takes a smaller share of the income of high-income taxpayers than of low-income taxpayers. - has no deadweight loss. - takes a larger share of the income of high-income taxpayers than of low-income taxpayers. - takes the same share of the income of high-income taxpayers as it does of low-income taxpayers.

takes a larger share of the income of high-income taxpayers than of low-income taxpayers

total tax revenue is

tax * quantity tax

A lump-sum tax, such as the fee for a driver's license, does not take into consideration: the benefits principle. efficiency. the tax base. the ability-to-pay principle.

the ability-to-pay principle

The two principles of tax fairness are: the equity principle and the efficiency principle. the minimize-distortions principle and the maximize-revenue principle. the proportional-tax principle and the ability-to-pay principle. the benefits principle and the ability-to-pay principle.

the benefits principle and the ability-to-pay principle

Since the terrorist attacks of September 11, 2001, the Federal Aviation Agency has added a small security fee to every airplane ticket purchased. This is an example of: the benefits principle of tax fairness. a lump-sum tax. a profits tax. the ability-to-pay principle of tax fairness.

the benefits principle of tax fairness

If an excise tax is imposed on automobiles and collected from consumers: - the supply curve will shift upward by the amount of the tax. - the demand curve will shift downward by the amount of the tax. - the equilibrium quantity supplied will increase relative to the pretax level. - the equilibrium quantity demanded will increase relative to the pretax level.

the demand curve will shift downward by the amount of the tax

Which of the following taxes reflects the ability-to-pay principle? a sales tax on food Social Security tax the federal income tax the payroll tax

the federal income tax

Producers in a particular market will bear the greater burden of an excise tax: - if demand has the same price elasticity as supply. - the less price-elastic demand is relative to supply. - the more price-elastic the demand is relative to supply. - regardless of the price elasticity of demand or supply.

the more price-elastic the demand is relative to supply

The benefits principle says that: - the amount of tax paid depends on the measure of value. - those who benefit from public spending should bear the burden of the tax that pays for that spending. - those with greater ability to pay should pay more tax. - those who benefit from the tax should pay the same percentage of the tax base as those who do not benefit.

those who benefit from public spending should bear the burden of the tax that pays for that spending

A family will pay less than the personal income tax rate in personal taxes. true false

true

An excise tax causes a loss in efficiency because taxes distort incentives. True False

true

In general, the incidence of an excise tax is shared between buyers and sellers. False True

true

Overall, the taxes collected by the federal government are progressive. False True

true

The deadweight loss of an excise tax arises because the tax prevents some mutually beneficial transactions. True False

true

The marginal tax rate for a family income equals the personal income tax rate. true false

true

whoever has a more inelastic curve pays more of the burden of the tax t/f

true

_____ tax is NOT used in the United States. Sales Property Value-added Profits

value-added

An analysis of the effect of excise taxes on markets allows us to conclude that: - when the price elasticity of demand is lower than the price elasticity of supply, an excise tax falls mainly on the producers. - when the price elasticity of demand is higher than the price elasticity of supply, an excise tax falls mainly on the consumers. - when the price elasticity of supply is equal to zero, an excise tax falls entirely on the consumers. - whether the tax is levied on consumers or producers, the quantity sold will be the same.

whether the tax is levied on consumers or producers, the quantity sold will be the same

If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is likely to increase. 0.2; 0.5 0.2; 2.1 3.3; 0.5 3.3; 2.1

0.2; 0.5

If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family earning an income of $75,000 will pay a MARGINAL tax rate of: 5%. 10%. 20%. 7.5%.

20%

If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 25%, a family earning income equal to $60,000 will pay a marginal tax rate of _____ and an average tax rate of _____. - 25%; 25% - 12.5%; 25% - 25%; 8.3% - 10%; 15%

25%; 8.3%

In 2008, the Social Security (FICA) tax was levied only on incomes up to $102,000. Which of the following statements about this tax is CORRECT? a. A worker with an annual income of $50,000 and one with an annual income of $100,000 paid the same dollar amount of FICA tax. b. The percentage of income paid in FICA taxes was the same for a worker with an annual income of $50,000 and a worker with an annual income of $100,000. c. The top 20% of income earners earned over 50% of total U.S. incomes in 2001, and they paid approximately 60% of the total FICA taxes collected that year. d. A worker with an annual income of $200,000 and one with an annual income of $102,000 paid the same dollar amount of FICA tax.

d

An excise tax causes inefficiency if the number of transactions in a market is reduced as a result of the tax. Because the tax discourages mutually beneficial transactions, there is a(n) _____ from a tax. increased consumer surplus deadweight loss increased producer surplus quota rent

deadweight loss

If a tax system is well designed: - it maximizes fairness. - efficiency can be improved only by making the system less fair. - it maximizes efficiency. - it maximizes efficiency and equity.

efficiency can be improved only by making the system less fair

A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if demand is _____ and supply is _____. inelastic; inelastic elastic; elastic inelastic; elastic elastic; inelastic

elastic; elastic

If the main purpose of a tax is to decrease the amount of a harmful activity, such as underage drinking, the government should impose it on harmful activities whose supply is _____ and demand is _____. inelastic; elastic inelastic; inelastic elastic; inelastic elastic; elastic

elastic; elastic

All of the following are costs associated with the imposition of a tax EXCEPT: administrative cost. revenues. equilibrium pricing. deadweight loss.

equilibrium pricing

If a tax system is poorly designed, it may be possible to increase: - efficiency without sacrificing equity. - efficiency by sacrificing equity. - equity without causing inefficiency or increase efficiency without sacrificing equity. - equity while causing inefficiency.

equity without causing inefficiency or increase efficiency without sacrificing equity

Cigarette taxes have eliminated the wedge between the demand price for cigarettes and the supply price of cigarettes. False True

false

The administrative costs of a tax include the costs incurred by the government in collecting the tax (such as the costs of operating the Internal Revenue Service) but exclude the costs incurred by individuals in paying the tax (such as accountants' fees). False True

false

The benefits principle says that taxes should be used to benefit the maximum number of people. False True

false

Taxation according to the benefits-received principle is best illustrated by the _____ tax. sales gift gasoline income

gasoline

A tax: - increases consumer and producer surplus. - generates tax revenue and causes deadweight loss. - produces revenue for the government and increases total surplus. - is always efficient.

generates tax revenue and causes deadweight loss

The richest 20% of families in the United States pay a much _____ share of total income taxes collected and a _____ share of FICA taxes than their share of total income. lower; lower lower; higher higher; lower higher; higher

higher; lower

A regressive tax takes a: - higher percentage of income as income rises. - fixed percentage of income. - lower percentage of income as income falls. - lower percentage of income as income rises.

lower percentage of income as income rises

The _____ rate applies to an additional $1 of taxable income. total average lower marginal

marginal

If a tax system is designed to minimize the sum of its deadweight loss and its administrative cost, its principal goal is: maximizing equity. minimizing the tax burden. maximizing efficiency. maximizing revenue.

maximizing efficiency

Given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax. less; smaller less; larger more; smaller more; larger

more; larger

Economic analysis shows that workers pay _____ of the FICA. none exactly half most very little

most

The burden of a tax on a good is said to fall completely on the consumers if the: - price paid by consumers does not change. - wages received by workers who produce the good increase by the amount of the tax. - price paid by consumers for the good declines by the amount of the tax. - price paid by consumers for the good increases by the amount of the tax.

price paid by consumers for the good increases by the amount of the tax

Suppose the price elasticity of demand is relatively elastic and the price elasticity of supply is relatively inelastic in a specific market. If an excise tax is imposed on this good, who will bear the greater burden of the tax? government both consumers and producers equally consumers producers

producers

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes does not change: - producers are paying all of the tax. - consumers are paying all of the tax. - consumers and producers are paying equal amounts of the tax. - the government will receive less tax revenue than anticipated.

producers are paying all of the tax

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2: - the government will receive less tax revenue than anticipated. - consumers are paying more of the tax than the producers. - producers are paying more of the tax than are the consumers. - the quantity of shoes sold will increase.

producers are paying more of the tax than are the consumers

A tax of $10 on an income of $100, $25 on an income of $200, and $60 on an income of $300 is: regressive. proportional. progressive. flat.

progressive

A tax that takes a higher percentage of income as income rises is: proportional. an ability tax. progressive. regressive.

progressive

Suppose an income tax is levied on none of the first $1,000, 10% of the next $10,000, and 20% of the remainder of earnings. This type of tax can be defined as: equitable. proportional. regressive. progressive.

progressive