Midterm 3 Econ Chapter 10
A buyer is willing to buy 10 units of a good at a maximum price of $10 per unit. The reservation value of the buyer in this case is:
$10
What is the budget surplus if the total amount of taxes collected by a local government is $171,000 and the total amount spent is $90,000?
$81,000
Joseph earns $75,000. If his average tax rate is 20%, what is the total amount of money that he pays as tax?
15,000
Which of the following taxes does NOT lead to a deadweight loss?
A lump-sum tax
Which of the following is true of a progressive tax system?
High income households pay a higher percentage of their income as taxes.
How would you depict the trade-off between equity and efficiency on a graph?
Inequality on one axis and social surplus on the other with a positively-sloped function
Government spending in the United States has grown over time and now accounts for more than 40 percent of U.S. national income. Does this mean that government has been consistently running a budget deficit?
No, government deficits depend upon spending and tax revenue.
When an outcome is _________, social surplus is ___________.
Pareto efficient; maximized
Which of the following is an objective of government taxation?
Redistribution of funds
Which of the following is a factor underlying government taxation and spending decisions?
To raise revenues to pay for operations.
A ________ occurs when government spending exceeds tax revenue.
budget deficit
A price ceiling leads to a(n) _________ if below equilibrium price.
decrease in total surplus
The largest source of the federal tax revenue is
individual income taxes
The largest source of the federal tax revenue is __________.
individual income taxes
Taxes listed as Federal Insurance Contribution Act taxes on the employee paystub are
payroll taxes
The government of Lithasia has decided to set a minimum price for certain agriculturalproducts in order to safeguard the interests of farmers. This is an example of a ________.
price floor
A ________ tax system is one in which tax rates increase with taxable base incomes.
progressive
In the United States, income taxes are __________.
progressive
The federal government relies on ____________ to limit inequality.
progressive taxes
Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. If each family pays 12% of its income as tax every year, the local government follows a(n) ___________ tax system.
proportional
One reason governments impose taxes is to __________.
redistribute funds via transfer payments
Given that there are costs involved with government intervention in an economy, governments still choose to intervene in markets to ____________.
reduce poverty.
A _________ is the price at which a trading partner is indifferent between making the trade and not doing so.
reservation value
A restaurant charges its customers 12% of the total food price as tax. This is an example of a _________ tax.
sales
The term ________ refers to how the burden of the tax is distributed across various agents in the economy.
tax incidence
The tax incidence on sellers is higher if
the buyers are more sensitive to price changes than the sellers
Many people have argued that an income tax should be "marriage neutral," that is, two people should pay the same total tax whether they are married or they are single. Suppose Amanda earns nothing, Ben earns $60,000, and Cathy and Dylan each earn $30,000. They are all single. Amanda marries Ben and Cathy marries Dylan. This country taxes married couples based on a family's total income. Amanda and Ben will pay the same tax as Cathy and Dylan because ____________.
the couples have the same family income.
If positive externalities are present in a free market, ___________ at any output level.
the marginal social benefit of production exceeds marginal private benefit
In a progressive tax system,
the marginal tax rate exceeds the average tax rate
The burden of a tax falls entirely on buyers if
the price elasticity of demand is zero (perfectly inelastic)
The burden of a tax falls entirely on sellers if
the price elasticity of supply is zero (perfectly inelastic)
If a tax is imposed on each unit of a good purchased,
the supply curve for the good shifts to the left
Tax incidence refers to ____________.
who bears the burden of a tax.
Suppose a market has only one seller and only one buyer of a good. The buyer has a reservation value of $25 and the seller has a reservation value of $15. The market price of the good is determined at $20. If they trade, the social surplus will be
$10
If the total revenue collected by the federal government in a particular year is $1.2 billion and the total amount spent by the government during the same year is $3.8 billion, what is the budget deficit?
$2.6 billion
The government of Lithasia ran a budget deficit of $60,000 in 2014. If the tax revenue of the Lithasian government in 2014 was $320,000,000, how much did the government spend in that year?
$320,060,000
The government of Lithasia ran a budget deficit of $60,000 in 2017. If the tax revenue of the Lithasian government in 2017 was $320,000,000, how much did the government spend in that year?
$320,060,000
If Kate pays an average tax rate of 12.5% and her total income is $34,000, she pays ________ as tax.
$4,250
If Kate pays an average tax rate of 12.5% and her total income is $34,000, she pays _________ as tax.
$4,250
If a seller's reservation value for a good is $10 and the price at which the good is sold is $15, his producer surplus is:
$5.
Mr. Smith pays $20,000 annually as tax. If his annual income is $100,000, what is his average tax?
20%
In an economy, if the government implements a law for individuals that requires them to save at least 25% of their annual income in a social savings plan framed by the government. For supporting this plan, the government raises revenues by implementing income tax rates that are higher compared to the other countries. Which of the following will be a result(s) of this scenario?
An increase in the deadweight losses.
Which of the following is a cost associated with government intervention in an economic system?
Bureaucracies
The new governor of Vermont is worried about increasing geographic inequality within the state. The richest county in Vermont, Chittenden, has median per capita income of about $32,000, while the poorest counties, Caledonia, Franklin, Orleans and Essex, have median income per capita around $20,000. Vermont has a budget of about $5 billion. The governor is considering changing the allocation of the budget and taxes in order to deal with the inequality problem. His first proposal is to increase transfers to the residents of Caledonia, Franklin, Orleans, and Essex. There are about 50,000 households in the four counties, and the governor would like to transfer $5,000 to each household. How much will this increase Vermont's budget?
By $250 million.
Which of the following is the largest source of revenue for state governments?
Miscellaneous taxes andfees, such as tolls on roads and public transportation tickets.
Is the entire burden of the tax always borne by those on whom it is imposed?
Not necessarily, since the burden of the tax depends on price elasticity.
Local governments usually rely on the ___________ tax to fund schools, libraries, and public services such as police and fire protection.
Property
Which of the following are examples of inefficiencies created by government intervention?
Quality deterioration in a market after government implements a price control.
A restaurant charges its customers 12% of the total food price as tax. This is an example of a _________ tax.
Sales
_________ taxes are paid by a buyer as a percentage of the market price of an item.
Sales
____________ taxes are paid by a buyer as a percentage of the market price of an item.
Sales
Which of the following is not a result of corruption?
Selling goods at a price that does not include taxes.
Which of the following is true?
The central as well as the local governments collect taxes in the U.S.
The new governor of Vermont is worried about increasing geographic inequality within the state. The richest county in Vermont, Chittenden, has median per capita income of about $32,000, while the poorest counties, Caledonia, Franklin, Orleans and Essex, have median income per capita around $20,000. Vermont has a budget of about $5 billion. The governor is considering changing the allocation of the budget and taxes in order to deal with the inequality problem. His advisors inform the governor that the increased budget shortfall would be costly to finance. He instead proposes to tax the residents of Chittenden. There are about 62,500 households in Chittenden. The governor proposes a tax of 12.5 percent on each household to finance his transfer program. His advisors explain to him that the tax revenue generated by this proposal will be less than the necessary amount. Why?
The higher tax will lead to lower labor supply, and thus household income will fall below $32,000 in Chittenden and there will be less tax revenue.
In an economy, there is a high level of social inequality. This causes the government to implement a wealth tax on its citizens who earn a high level of income and, therefore, are capable of holding assets. Which of the following is not a result of the implementation of the wealth tax?
The increase in consumer surplus and decrease in social inequality.
Many people have argued that an income tax should be "marriage neutral," that is, two people should pay the same total tax whether they are married or they are single. Suppose Amanda earns nothing, Ben earns $60,000, and Cathy and Dylan each earn $30,000. They are all single. Amanda pays no tax because she has no income. If they all live in a country that has a progressive income tax, which will be higher: the tax that Ben pays or the sum of the taxes Cathy and Dylan pay?
The tax that Ben pays because high-income individuals pay higher income taxes.
Which of the following functions is beyond the scope of economics as far as government intervention is considered?
To make a value judgment on whether government is good or bad.
Consider the tax burden on consumers and producers of a $1 per-unit tax to be paid by producers when demand is perfectly elastic and supply is perfectly inelastic. The incidence of the tax falls entirely on producers because ____________.
consumers are infinitely price sensitive.
The two most important goals for government policy involve a trade-off between __________ and __________.
equity; efficiency
The reservation value of a seller reflects her ________________.
marginal cost
Which of the following is an implication of the Coase Theorem?
negative externality
An outcome is Pareto efficient if
no individual can be made better off without making someone else worse off
Sale of a popular energy drink called 7D was banned in Bonland after a study revealed that one of its ingredients increases the risk of cancer. This legislation is an example of _______.
paternalism
The price of a gallon of gasoline in Bonland is $3.20. However, just before the election, the government decides to fix the price of gasoline at $2.80 per gallon. This is an example of a ________.
price ceiling
Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. If the first household pays 20% of its income as tax, the second household pays 17.5% of its income as tax, the third household pays 13% of its income as tax, and the fourth household pays 10% of its income as tax, income taxes are ________ in nature.
regressive
If the production of a good gives rise to negative externalities _________________.
the social cost of production exceeds the private cost of production
If a tax is imposed per unit of a good sold,
the supply curve for the good shifts to the left
Deadweight loss refers to the loss in __________.
total surplus due to a market distortion such as an externality
