Econ Chapters 10-15

In the United States, the marginal tax rate on individual federal income tax...

increases as income increases

implicit costs

input costs that do not require an outlay of money by the firm

explicit costs

input costs that require an outlay of money by the firm

pollution permits

permits allocated in an emissions trading system

average variable cost

variable cost divided by the quantity of output

average tax rate

total taxes paid divided by total income

corporation

a business set up to have its own legal existence, distinct and separate from its owners

tragedy of the commons

a parable that illustrates why common resources are used more than is desirable

A tax on the wages that a firm pays its workers is called

a payroll tax

free rider

a person who receives the benefit of a good but does not pay for it

cost-benefit analysis

a study that compares the costs and benefits to society of providing a public good

proportional tax

a tax for which high-income and low-income taxpayers pay the same fraction of income

progressive tax

a tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers

regressive tax

a tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers

payroll taxes

a tax on the wages that a firm pays to its workers

efficient tax system

a tax system that imposes small deadweight losses and small administrative burdens

lump-sum taxes

a tax that is the same amount for every person

suppose the government imposes a tax of 10% on the first $40k of income and 20% on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $30,000?

$3,000 and 10%, respectively

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are..

$75

A taxpayer faces the following tax rates on her income: 20% if the first $40k of her income; 30% of all her income above $40k At what level of income would the taxpayer's marginal tax rate be 30% and her average tax rate be 25%?

$80,000

A positive externality occurs when 1. jack receives a benefit from John's consumption of a certain good 2. Jack receives personal benefits from his own consumption of a certain good 3. Jack's benefit exceeds John's benefit when they each consume the same good 4. Jack receives a loss from John's consumption of a certain good

1. Jack receives a benefit from John's consumption of a certain good

Which of the following are taxed? 1. both corporate profits and dividends shareholders receive 2. corporate profits but not dividends shareholders receive 3. dividends shareholders receive but not corporate profits 4. neither corporate profits nor dividends shareholders receive

1. both corporate profits and dividends shareholders receive

A negative externality 1. is a cost to a bystander 2. is a cost to the buyer 3. is a cost to the seller 4. exists with all market transactions

1. is a cost to a bystander

Some goods can be either common resources or public goods depending on 1. whether the good is rival in consumption 2. whether the good is excludable 3. the marginal cost of the good 4. none of the above is correct

1. whether the good is rival in consumption

Sue earns income of $80,000 per year. Her average tax rate is 50%. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?

16.67% and 70% respectively

Goods that are rival in consumption but not excludable would be considered, 1. club goods 2. common resources 3. public goods 4. private goods

2. common resources

A positive externality will cause a market to produce 1. more than is socially desirable 2. less than is socially desirable 3. the socially optimal equilibrium amount 4. more than the same market would produce in the presence of a negative externality

2. less than is socially desirable

when negative externalities are present in a market, 1. producers will be affected but consumers will not 2. producers will supply too much of the product 3. demand will be too high 4. the market will still maximize total benefits

2. producers will supply too much of the product

Positive externalities 1. result in a larger than efficient equilibrium quantity 2. result in a smaller than efficient equilibrium quantity 3. result in an efficient equilibrium quantity 4. can be internalized with a corrective tax

2. result in a smaller than efficient equilibrium quantity

When negative externalities are present in a market, 1. private costs will be greater than social costs 2. social costs will be greater than private costs 3. only government regulation will solve the problem 4. the market will not be able to to reach any equilibrium

2. social costs will be greater than private costs

A taxpayer faces the following tax rates on her income: 20% of the first $40k if her income 30% of all her income above $40k The taxpayer faces a marginal tax rate of...

20% when her income rises from $30k to $30,001

Income Tax Rate $0-$40k 25% $40k-$100k 40% Over $100k 60% What is the marginal tax rate for a person who makes $35,000?

25%

Private markets fail to account for externalities because 1. externalities don't occur in private markets 2. sellers include costs associated with externalities in the price of their product 3. decisionmakers in the market fail to include the costs of their behavior to third parties 4. the government cannot easily estimate the optimal quantity of pollution

3, decisionmakers in the market fail to include the costs of their behavior to third parties

Which of the following is an example of a positive externality? 1. air pollution 2. a person littering 3. a nice garden in front of your neighbor's house 4. The pollution of a stream

3. A nice garden in front of your neighbor's house

Goods that rival in consumption include both 1. club goods and public goods 2. public goods and common resources 3. common resources and private goods 4. private goods and club goods

3. common resources and private goods

Private markets fail to reach a socially optimal equilibrium when negative externalities are present because 1. social costs equal private costs at the private market solution 2. private costs exceed social costs at the private market solution 3. social costs exceed private costs at the private market solution 4. they internalize externalities

3. social costs exceed private costs at the private market solution

Corporate profits are 1. included in payroll taxes 2. exempt from taxes 3. taxed twice, once as profit and once as dividends 4. taxed to pay for Medicare

3. taxed twice, once as profit and once as dividends

Sue earns an income of $80,000 per year. Her average tax rate is 30%. Sue paid 20% in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

36%

Which of the following is NOT an example of a negative externality? 1. air pollution from a manufacturing plant 2. disrupted sleep from a neighbor's loud music 3. an illness caused by secondhand cigarette smoke 4. a decrease in your property value from neglecting your lawn and garden

4. a decrease in your property value from neglecting your lawn and garden

Negative externalities occur when one person's actions 1. Cause another person to lose money in a stock market transaction 2. cause his or her employer to lose business 3. reveal his or her preference for foreign-produced goods 4. adversely affect the well-being of a bystander who is not a party to the action

4. adversely affect the well-being of a bystander who is not a party to the action

Both public goods and common resources are 1. rival in consumption 2. nonrival in consumption 3. excludable 4. nonexcludable

4. nonexcludable

A good is excludable if 1. one person's use of the good diminishes another person's enjoyment of it 2. the government can regulate its availability 3. it is not a normal good 4. people can be prevented from using it

4. people can be prevented from using it

Goods that are rival in consumption and excludable would be considered 1. club goods 2. common resources 3. public goods 4. private goods

4. private goods

Goods that are excludable include both 1. club goods and public goods 2. public goods and common resources 3. common resources and private goods 4. private goods and club goods

4. private goods and club goods

Income Tax Rate $0-$40,000 25% $40,000-$100k 40% Over $100k 60% What is the average tax rate for a person who makes $130,000?

40%

Income Tax rate $0-$40k 25% $40k-$100k 40% Over $100k 60%

40%

Income Tax rate $0-$50k 20% $50,001-$100k 40% Over $100k 60% What is the marginal tax rate for a person who makes $60k?

40%

James earns income of $90k per year. His average tax rate is 40%. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

61%

market-based policies

Examples would be internalizing externalities by taxing activities that have negative externalities and subsidizing those that have positive externalities.

administrative burdens

Taxpayers bear as they comply with the tax laws

sales taxes

added to the price of goods and services at the time of purchase

A taxpayer faces the following tax rates on her income: 20% of the first $40,000 of her income 30% of all her income about $40,000

an average tax rate of 22% when her income is $50,000

Negative externalities

cause markets to produce more than socially desirable

fixed cost

costs that do not vary with the quantity of output produced

variable costs

costs that vary with the quantity of output produced

Sue earns an income of $80,000 per year. Her average tax rate is 40%. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income? a. 15% b. 32% c. 40% d. 55%

d. 55%

average fixed cost

fixed cost divided by the quantity of output

private goods

goods that are both excludable and rival in consumption

club goods

goods that are excludable but not rival in consumption

public goods

goods that are neither excludable nor rival in consumption

common resources

goods that are rival in consumption but not excludable

Because the marginal tax rate rises as income rises

higher income families, in general, pay a larger percentage of their income in taxes

Tax liability

how much a family owes in tax based on their total income

Positive externalities

lead markets to produce less than socially desirable

If your income is $50,000, your income tax liability is $10,000, and you paid $0.25 in taxes on the last dollar you earned, your...

marginal tax rate in 25%

State and local governments

receive some of their funds from the federal government

command-and-control policies

regulate behavior directly by either requiring or forbidding certain behaviors through government action.

Corporate profits distributed as dividends are...

taxed twice

corrective taxes

taxes enacted to deal with the effects of negative externalities. Preferred by economists because they reduce pollution at a lower cost to society

property taxes

taxes levied by property owners as a percentage of the estimated value of land and structures

economic profit

total revenue minus total cost, including both explicit and implicit costs

accounting profit

total revenue minus total explicit costs

corporate income taxes

taxes paid by firms to the government from their profits. taxes once by the corporate income tax when the corporation earns the profits, and they are taxed again by the personal income tax when the corporation uses its profits to pay dividends to its shareholders.

total revenue

the amount a firm receives for the sale of its output

marginal tax rate

the amount by which taxes increase from an additional dollar of income

benefits principle

the idea that people should pay taxes based on the benefits they receive from the government

ability-to-pay principle

the idea that taxes should be levied on a person according to how well that person can shoulder the burden

vertical equity

the idea that taxpayers with a greater ability to pay taxes should pay larger amounts

horizontal equity

the idea that taxpayers with similar abilities to pay taxes should pay the same amount

technology spillover

the impact of one firm's research and production efforts on other firms' access to technological advance

marginal product

the increase in output that arises from an additional unit of input

marginal cost

the increase in total cost that arises from an extra unit of production

total cost

the market value of the inputs a firm uses in production

social cost

the private costs + external costs

excludability

the property of a good whereby a person can prevented from using it

rivalry in consumption

the property of a good whereby one person diminishes other people's use

economies of scale

the property whereby long-run average total cost falls as the quantity of output increases

diseconomies of scale

the property whereby long-run average total cost rises as the quantity of output increases

constant returns to scale

the property whereby long-run average total cost stays the same as the quantity of output changes

diminishing marginal product

the property whereby the marginal product of an input declines as the quantity of the input increases

efficient scale

the quantity of output that minimizes average total cost

production function

the relationship between the quantity of inputs used to make a good and the quantity of output of that good

In the presence of a positive externality,

the social value of the good exceeds the private value

average total cost

total cost divided by the quantity of output

profit

total revenue minus total cost

externality

when a person engages in an activity that influences the well-being of a bystander but neither pays or receives compensation for that effect

internalizing the externality

when a tax (such as taxing aluminum sellers per ton sold) this would shift the supply curve for aluminum upward and give buyers and sellers an incentive to take into account the external costs of their actions

deadweight losses

when taxes distort the decisions people make

negative externality

when the impact of the externality is adverse

positive externality

when the impact of the externality is beneficial