ECON Exam 2

Suppose you earned $34,000 in 2010. Using the tax table, it can be said that your average tax rate was _____. 8.65% 13.1% 14.35% 10.75%

13.1%

Raising taxes has ____________ returns to revenue.

Blank 1: diminishing or decreasing

Who actually loses surplus as a result of the tax is the _____________ incidence of the tax.

Blank 1: economic

A tax may create a(n) ____________, and the revenue it generates may be used to fix another _____________.

Blank 1: inefficiency Blank 2: inefficiency, one, or 1

How much _____________ is caused by income tax, and how much _____________ is raised by it, depends on how much workers will reduce the quantity of _____________ they will supply in response to a ______________ on wages.

Blank 1: inefficiency Blank 2: revenue Blank 3: labor or work Blank 4: tax

All else equal, imposing taxes in markets where demand and supply are price-_____________ not only causes less _____________but also raises more ________________.

Blank 1: inelastic Blank 2: inefficiency or deadweight loss Blank 3: revenue

Suppose a person earning $20,000 pays 20 percent of income in taxes and a person earning $200,000 pays 20 percent of income in taxes. This tax is ____________.

Blank 1: proportional or flat

With a tax that is _____________, people are taxed in proportion to their income.

Blank 1: proportional or flat

As tax rates get higher, we can expect revenue to increase at a slower rate as the ___________ effect catches up with the ___________ effect.

Blank 1: quantity Blank 2: price

With a tax, the value of the ______________ that is lost to buyers and sellers but converted into tax revenue may be transferred to someone else through ______________ policies, but it is not lost.

Blank 1: surplus Blank 2: government or public

Deadweight loss is the difference between the loss of _____________ to taxpayers and the tax _____________ collected.

Blank 1: surplus Blank 2: revenue

The ____________ that is lost to buyers and sellers but converted into tax ______________ is not considered a cost, because the the money funds public services.

Blank 1: surplus Blank 2: revenue

The concept of ____________ incidence describes how a tax burden is distributed among buyers and sellers, old people or young people, rich people or poor people, and so on.

Blank 1: tax

Calculating the revenue raised by a tax is simple: Multiply the ____________ rate by the ____________ of units of the thing being taxed.

Blank 1: tax Blank 2: number , #, amount, or quantity

____ loss is value that disappears as the result of a tax. Consumer Producer Equilibrium Deadweight

Deadweight

____________ loss is the difference between the loss of surplus to taxpayers and the tax revenue collected.

Deadweight

Select all that apply Administering costs of taxes include which of the following? Enforcing tax payments Lobbying legislators Determining the tax Procedures for collecting revenues Handling the collected funds

Enforcing tax payments Procedures for collecting revenues Handling the collected funds

Select all that apply Which three of the following concepts are particularly useful in evaluating the costs and benefits of alternative types of taxes? Incidence Location Placement Efficiency Revenue Jurisdiction

Incidence Efficiency Revenue

Which of the following is not one of three categories economists and policymakers use to classify taxes? Regressive Proportional Marginal Progressive

Marginal

Select all that apply FICA is usually considered a regressive tax because of which of the following reasons? Only earnings up to a cap are taxed It taxes only earned wage income It taxes all income All earnings are taxed

Only earnings up to a cap are taxed It taxes only earned wage income

Which of the following is not one of the three concepts useful in evaluating the costs and benefits of alternative types of taxes? Incidence Efficiency Quantity Revenue

Quantity

Total revenue from a tax = Multiple choice question. Tax per unit ÷ Number of units. Tax per unit x Price per unit. Tax per unit x Number of units. Number of units.÷Tax per unit.

Tax per unit x Number of units.

When you file taxes at the end of the year, you report your _____________ earnings.

actual

When a government spends more than it earns in revenue, we say that it has a budget ___________

deficit

If the federal government brings in $3 trillion in tax revenues and spends $4 trillion, the government has a budget _______ of _______ trillion. deficit; $1 surplus; $1 surplus; $7 deficit; $0.75

deficit; $1

In general, raising taxes has: increasing returns to revenue. constant returns to revenue. diminishing returns to revenue. increasing then decreasing returns to revenue.

diminishing returns to revenue.

The net ____________ effect of a tax is specific to each tax, and to each use of government proceeds from the tax.

efficiency or inefficiency

All other things equal, the size of the deadweight loss due to a sales tax depends primarily on: elasticity the level of demand the use of tax revenues the type of tax. The deadweight loss will be greater than the reduction in _________

elasticity quantity

Often, states charge separate sales taxes, called _________ taxes, targeted at specific goods, such as gasoline or cigarettes.

excise

The Laffer curve demonstrates that raising tax rates: first decreases and then eventually increases tax revenues. always decreases tax revenues. always increases tax revenues. first increases and then eventually decreases tax revenues.

first increases and then eventually decreases tax revenues.

The _____-largest category of U.S. government expenditure in 2012 includes programs to support people with low income, such as welfare, public and subsidized housing, and food stamps.

fourth

____________-income countries, especially those with extensive government-provided social benefits, tend to collect taxes that represent a greater share of their GDP.

high

People with higher overall income also tend to receive a __________ (higher/lower) percentage of income from non-wage sources, so they end up paying a ___________ (higher/lower) percentage of their total income in payroll taxes.

higher lower

The federal income tax _______ than a state sales tax. is easier to administer is less efficient is less complex has a lower administrative burden

is less efficient

The administrative burden of taxes: depends on the amount of revenue generated. is smallest with a lump-sum tax. grows smaller as a tax gets larger. is the same across all types of taxes.

is smallest with a lump-sum tax.

In the United States, the sale of a house that was used as a primary residence is taxed at a ___________ rate than other real estate.

lower

If everyone is taxed the same amount regardless of their economic status, the tax is called a administrative tax. progressive tax. lump-sum tax. regressive tax.

lump-sum tax.

To calculate tax revenue, we: multiply total revenue by the tax per unit. multiply the tax per unit by the price of the good being taxed. divide total revenue by the tax per unit. multiply the tax per unit by the number of units being taxed.

multiply the tax per unit by the number of units being taxed.

A _____________ tax is a tax on the wages paid to an employee.

payroll

Suppose the government wants to levy a new excise tax. For each of the following goods, determine whether you would expect an excise tax to result in large or small deadweight loss. a. Alcohol Deadweight loss is relatively _________. b. Milk Deadweight loss is relatively __________. c. Diamonds Deadweight loss is relatively ___________. d. Tropical vacations Deadweight loss is relatively ___________. e. Socks Deadweight loss is relatively ___________.

small small large large small

Deadweight loss is value that can disappear as the result of a _____. credit chance. payment tax

tax

The Laffer curve shows the relationship between: tax rates and tax revenues deadweight loss and elasticity tax revenue and deadweight loss tax rates and elasticity. As income tax rates rise, revenues: first fall and then rise first rise and then fall fall rise

tax rates and tax revenues first rise and then fall

A lump-sum tax: taxes everyone the same amount, regardless of income. takes the same percentage from all taxpayers, regardless of income. requires those with low incomes to pay a smaller percentage of their income than high-income people. is levied such that low-income taxpayers pay a greater proportion of their income than high-income taxpayers.

taxes everyone the same amount, regardless of income.

A proportional tax: taxes everyone the same amount, regardless of income. is levied such that low-income taxpayers pay a greater proportion of their income than high-income taxpayers. requires those with low incomes to pay a smaller percentage of their income than high-income people. takes the same percentage from all taxpayers, regardless of income.

taxes everyone the same amount, regardless of income.

In an efficient market, a tax causes the demand curve to shift down by the amount of the tax because the effective price paid by consumers is now lower at any given market price. the effective price received by producers is now higher at any given market price. the effective price paid by consumers is now higher at any given market price. the market equilibrium price is now lower at any given price.

the effective price paid by consumers is now higher at any given market price.

The surplus that is lost to buyers and sellers but converted into tax revenue is not considered a cost, because the tax revenue equals expenditures. the tax revenue funds public services. the tax revenue is less than expenditures. the tax revenue comes from the public.

the tax revenue funds public services.

When policy makers are deciding where to place the statutory incidence of a tax, it is helpful to remember that: this decision will largely determine the economic incidence of the tax. this decision will have no effect on the economic incidence of the tax. this decision will have a large impact on the efficiency of the tax. the economic incidence will fall to the more elastic party.

this decision will have no effect on the economic incidence of the tax.

Select all that apply A tax on income discourages people from _____. working extra hours overworking leisure activities working

working extra hours overworking working

In an efficient market, a ______________ causes the demand curve to shift down by the amount of the _______________.

Blank 1: tax Blank 2: tax

As tax rates get higher, at some point, taxes can get so high that the __________ quantity price effect dominates the __________ price quantity effect, and raising taxes further will __________ decrease increase total revenue.

quantity price decrease

True or false: Just because a tax creates inefficiency does not necessarily mean that the tax is bad.

true

One type of inefficiency of a tax is ___________ burden, which represents the effort to manage and collect ___________.

Blank 1: administrative Blank 2: revenue, taxes, or tax

A lump-sum tax: is the most efficient form of taxation. charges the same amount to each taxpayer. is a regressive tax. I and III only I, II, and III II and III only II only

I, II, and III

In the real world, lump-sum taxes are: rarely used. often perceived as unfair. very efficient. All of these are true.

all of these are true

The logistical costs associated with implementing a tax are called the logistical management. logistical burden. administrative burden. administrative management.

administrative burden.

When a tax is present in a market, the price paid by consumers: is greater than that received by suppliers. equals that received by suppliers, but it is higher than the market price in the absence of taxes. is less than that received by suppliers. equals that received by suppliers, but it is lower than the market price in the absence of taxes.

is greater than that received by suppliers.

____________-income countries tend to collect less in taxes as a percentage of GDP.

low

The benefits people receive from Social Security are

progressive

Many tax-funded programs are intended to: increase efficiency. transfer surplus from producers to consumers. provide basic human needs. increase income inequality.

provide basic human needs.

When considering different tax levels, the revenue-maximizing point will be reached _______ when demand is _______ elastic. quickly; more quickly; less quickly; unit slowly; more

quickly; more

The primary intent of a tax on tobacco is to: reduce its consumption. increase market surplus. raise government revenues. support producers of tobacco

reduce its consumption

A _____ tax is levied in such a way that low-income taxpayers pay a greater proportion of their income toward taxes than do high-income taxpayers. progressive proportional regressive property

regressive

Suppose a person earning $20,000 pays 20 percent of income in taxes and a person earning $200,000 pays 15 percent of income in taxes. This tax is ____________.

regressive

People with a low income spend more of their overall income on food and clothing than wealthier people. As a result, they tend to spend a higher proportion of their income relative to people with high income. Given this trend, a general sales tax of eight percent is likely to be ___________ progressive regressive excessive proportional . Now, suppose that food and clothing are exempted from the sales tax. This is likely to make the tax _________ less progressive less regressive more regressive proportional

regressive less regressive

____________ tax is a non-specific tax based on the value of a good or service being purchased.

sales

The concept of incidence is used to describe who receives the revenue of any sort of tax. who bears the burden of any sort of tax. who administers any tax. the geographic area where the tax applies.

who bears the burden of any sort of tax.

Instructions: Round your answers to two decimal places for part a. For the remaining parts, round your answer to the nearest whole number. a. Suppose an excise tax of $1.50 per gallon is levied on gasoline suppliers. Draw the after-tax supply curve. Instructions: Use the tool provided 'Stax=$1.50' to draw the after-tax supply curve when the tax is $1.50. Plot the endpoints at Q = 0 and Q = 10. Consumers will pay $____ . Producers will receive $____ . b. The government will collect $____ million in tax revenue as a result of the tax. c. Suppose the tax is raised to $3 per gallon. Draw the new after-tax supply curve. Instructions: Use the tool provided 'Stax=$3.00' to draw the after-tax supply curve when the tax is $3.00. Plot the endpoints at Q = 0 and Q = 10. The government will collect an additional $____ million as a result of the tax increase from $1.50 to $3.00. d. Suppose the tax is raised again to $4.50 per gallon. Draw the new after-tax supply curve. Instructions: Use the tool provided 'Stax=$4.50' to draw the after-tax supply curve when the tax is $4.50. Plot the endpoints at Q = 0 and Q = 10. Tax revenue would _____.

4 2.5 6 3 stay the same

Governments like to tax cigarettes and alcohol because the demand for these goods is highly price-___________ which ensures that the tax collects a ____________ amount of revenue.

Blank 1: inelastic Blank 2: large , lot, great, high, significant, higher, or larger

Under a ____________ tax, also everyone is taxed the same amount, regardless of their economic ______________.

Blank 1: lump-sum, lump sum, head, or proportional Blank 2: behavior, activity, circumstance, or status

Raising taxes means that the government gets more revenue per units sold (the _____________ effect). But the higher tax rate causes fewer units to be sold (the _____________ effect).

Blank 1: price Blank 2: quantity

The current income tax in the United States is a ____________ tax

Blank 1: progressive

A tax is considered progressive if people with low incomes owe a ___________ percentage of their income than high-income people.

Blank 1: smaller, lower, lesser, small, or less

With a tax, the value of the ______________ that is lost to buyers and sellers but converted into tax revenue may be transferred to someone else through _____________ policies, but it is not lost.

Blank 1: surplus Blank 2: government or public

To determine revenue from a ______________ on a toll road, multiply the fee per car by the ______________ of cars.

Blank 1: tax or taxes Blank 2: number , amount, #, or quantity

Select all that apply Administering costs of taxes include which of the following? Handling the collected funds Lobbying legislators Enforcing tax payments Procedures for collecting revenues Determining the tax

Handling the collected funds Enforcing tax payments Procedures for collecting revenues

Consider the following statement: The more people earn, the larger the percentage of their total income they pay. This is consistent with which type of tax?

Progressive

In the United States, smaller corporations pay _____ percentage of their income compared to larger corporations. a larger a smaller the same

a smaller

Two types of inefficiencies associated with taxes are administrative burden and deadweight loss. administrative access and deadweight loss. administrative burden and externality loss. administrative access and externality loss.

administrative burden and deadweight loss.

The U.S. federal government's fiscal year, begins on the first day in October of one calendar year and runs through the last day in September of the following year. begins on the first day in January of one calendar year and runs through the last day in January of the following year. begins on the first day in July of one calendar year and runs through the last day in June of the following year. begins on the first day in January of one calendar year and runs through the last day in December of the following year.

begins on the first day in October of one calendar year and runs through the last day in September of the following year.

Capital gains are taxed separately from other types of income, under the appropriately-named corporate gains tax. consumer gains tax. capital profits tax. capital gains tax.

capital gains tax.

Spending that involves public expenditures that have to be approved by Congress each year is called congressional spending. discretionary spending. disposable spending. voluntary spending.

discretionary spending.

A proportional income tax is sometimes called a "___________ tax."

flat

A(n) _____________ tax is a tax charged on the earnings of individuals and corporations.

income

The value of the surplus that is lost to buyers and sellers but converted into tax revenue may be transferred to government through public policies, but it is not lost. may be transferred to government through private policies, and it is lost. may be transferred to someone else through government policies, and it is lost. may be transferred to someone else through public policies, but it is not lost.

may be transferred to someone else through public policies, but it is not lost.

Suppose there is currently a $4 per pack tax on cigarettes that generates $40,000 in revenue per month. If the tax increases to $6 per pack, the revenue the tax generates will increase to $55,000. This tells us that, in this range of tax rates, the _______ effect outweighs the _______ effect. quantity; income price; quantity price; income quantity; price

price; quantity

When the government raises taxes, the ________ effect refers to more revenue per unit sold. The ________ effect refers to fewer units sold at the higher tax rate. price; quantity revenue; quantity revenue; price quantity; price

price; quantity

The U.S. Federal individual income tax is

progressive

FICA is usually considered a ____________ tax

regressive

Tax __________ allows governments to provide goods and services to citizens, from national defense to highway building.

revenue

For any given tax, the revenue generated is: the same regardless of price elasticity. larger in markets with price elastic demand and supply. always maximized in markets with price elastic demand and supply. smaller in markets with price-elastic demand and supply.

smaller in markets with price-elastic demand and supply.

The largest percentage of government spending for a standalone program is spent on foreign aid. transportation. Social Security. national defense.

social security

Which of the following is an example of entitlement spending? National defense Garbage collection Police protection Social Security

social security

_____________ change behavior because they alter the incentives faced by market participants.

taxes

A main purpose of taxes is to reduce debt owed on government securities. to raise private revenue. to take from the rich and give to the poor. to raise public revenue.

to raise public revenue.

When a tax is imposed, the surplus that is lost to buyers and sellers but converted into tax revenue is: transferred to others through public programs. considered a cost of taxation. part of deadweight loss. All of these are true.

transferred to others through public programs.

True or false: Taxes result in a lower equilibrium quantity of the good or service being consumed.

true