econ exam 4

Consumer will always consume more of a good if their income increases.

False

All points on a demand curve are optimal consumption points.

True

When considering her budget, the highest indifference curve that a consumer can reach is the

one that is tangent to the budget constraint.

consumer is currently spending all of her available income on two goods: music CDs and DVDs. At her current consumption bundle, she is spending twice as much on CDs as she is on DVDs. If the consumer has $120 of income and is consuming 10 CDs and 2 DVDs, what is the price of a CD?

$8

In 2011, the average American paid approximately how much to the federal government in taxes?

$8,000

the tax code exempts the first person who earns $50,000 has an average tax rate ofcent $20,000 of income from taxation and then taxes 25 percent of all income above that level, then and a marginal tax rate of percent

15, 25

Which of the following is a characteristic of a more efficient tax system?

All of the above are correct.

Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect by itself will cause a

Both a and b are correct.

The equity of a tax system concerns whether the tax burden is distributed equally among the population.

False

Which of the following statements is necessarily true regarding a point along a budget line?

It implies an individual has spent her entire income.

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $ 50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements correct?

Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.

An excise tax is a tax on a specific good, like gasoline.

True

If a consumer experiences a decrease in income, the new budg et constraint will have the same slope as the old budget constraint.

True

The marginal rate of substitution is the slope of the indifference curve.

True

Which tax system requires higher-income taxpayers to have lower tax rates, even though they pay a larger amount of tax when compared to lower-income taxpayers?

a regressive tax

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from work

a. True

The most efficient tax possible is a

a. lump-sum tax.

When governmen t receipts exceed total government spending during a fiscal year, the difference is

budget surplus.

government imposes a tax of 20 $50,000. What is the marginal tax rate when income is $60,000? percent on the first $50,000 of income and 30 percent on all income above

c. 30 percent

budget constraint illustrates the

consumption bundles that a consumer can afford.

Why do some policymakers support a consumption tax rather than an earnings tax?

consumption tax would encourage people to save earned income.

to As more units of an item are purchased, everything else equal, marginal satisfaction from consuming additi additional units will tend to

decrease but at different rates for different people.

Taxes create deadweight losses because they

distort incentives.

Deadweight losses occur in markets in which

equilibrium prices fall.

The benefits principle is used to justify

gasoline taxes

The ability-to-pay principle claims that a person should pay taxes according to

how well that person can shoulder the tax burden.

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

increases as income increases

The largest source of revenue for the federal government is the

individual income tax.

Citizens expect the government to provide various goods and services making taxes

inevitable

When considering household savings, the relative price between consuming when young and consuming when old is the

interest rate that individuals can earn on their private savings.

Under a regressive tax system, the marginal tax rate for high income taxpayers is

lower than the marginal tax rate for low income taxpayers.

A consumer chooses an optimal consumption point where the

marginal rate of substitution equals the relative price ratio

The rate at which a consumer is willing to exchange one good for another while maintaining a constant level of satisfaction is called the

marginal rate of substitution.

One tax system is less efficient than another if it

places a higher tax burden on lower-income families than on higher-income families.

State and local governments

receive some of their funds from the federal government.

Which of the following statements is not correct?

regressive tax attempts to achieve vertical equity.

The tax that generates the most revenue for state and local government is the

sales tax.

If income decreases and prices are unchanged, the consumer's budget constraint

shifts inward.

The labor supply curve slopes upward if

substitution effect on leisure is greater than the income effect.

Suppose Reta is planning for retirement in a two-period second period Reta is old and retired and earns nothing. The interest world. In the first period Reta is young and earns $1 million, and in the rate is initially 10 percent, but then it falls to 7 percent. After the interest rate falls, the

substitution effect will induce Reta to consume more when she is young.

Vertical equity and horizontal equity are associated with

the ability-to-pay principle of taxation.

A consumption tax is a tax on

the amount of income that people spend.

The slope of the budget constraint is all of the following except

the marginal rate of substitution

The deadweight loss of a tax is

the reduction in economic welfare of taxpayers that exceeds the revenue raised by government.