Micro Quiz #4

A) Proportional

A _____ tax takes a fixed percentage of income, regardless of the level of income. A) proportional B) benefits C) progressive D) regressive

Goods and services sold abroad

Exports:

A) Elastic, Elastic

If the main purpose of a tax is to decrease the amount of a harmful activity, such asunderage drinking, the government should impose it on harmful activities whose supplyis _____ and demand is _____. A) elastic; elastic B) inelastic; inelastic C) elastic; inelastic D) inelastic; elastic

Depends on a firm's profits

Profits Tax

Equilibrium Pricing

A cost(s) NOT associated with the imposition of a tax is/are: -equilibrium pricing. -administrative cost. -revenues. -deadweight loss.

Low; low

A higher tax rate is more likely to increase tax revenue if the price elasticity of demand is _____ and the price elasticity of supply is _____. low; low low; high high; low high; high

the ability-to-pay principle

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.

Incidence of a tax

A measure of who really pays it

Excise Tax

A tax charged on each unit of a good or service that is sold (taxi rides, hotel room rentals, groceries)

D) Regressive

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

is efficient

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

B) it minimizes the costs to the economy of tax collection.

A tax system achieves efficiency when: A) the right people actually bear the burden of taxes .B) it minimizes the costs to the economy of tax collection. C) the tax is fair. D) it is in equilibrium.

A) taxes are distributed fairly, however society may define fair.

A tax system achieves equity when: A) taxes are distributed fairly, however society may define fair. B) it minimizes the costs to the economy of tax collection. C) it is efficient. D) taxes are lump sum.

Proportional Tax

A tax that takes a fixed percentage of income, regardless of the level of income, is a

Each Unit of a good or service that is sold

An excise tax is levied on: -each unit of a good or service that is sold. -the ownership of real estate. -earnings. -the inheritance of assets.

- Shifts the supply curve upward

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

Restaurant meals

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

A situation in which a country does not trade with other countries, self-sufficient

Autarky:

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 the tax system is

A) Tax Incidence

Determining who bears the burden of the tax is a question about: A) tax incidence. B) externality analysis. C) public interest theory. D) public choice theory.

B) False

For a tax system to achieve equity, it must first achieve efficiency. A) True B) False

B) more; larger

Given any downward-sloping demand curve for a good, the more price-elastic thesupply curve, the _____ equilibrium output will fall and the _____ will be thedeadweight loss when the government imposes an excise tax. A) more; smaller B) more; larger C) less; smaller D) less; larger

Maximizing efficiency

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.

- equity without causing inefficiency or increase efficiency without sacrificing equity.

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.

A) Demand Curve will shift downward by the amount of the tax

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

B) demand; downward

If an excise tax is imposed on wine and collected from the consumers, the _____ curvewill shift _____ by the amount of the tax. A) demand; upward B) demand; downward C) supply; upward D) supply; downward

Increase government revenue

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.

No deadweight loss!

If demand/supply are perfectly inelastic....

Minimize deadweight loss, choose the goods with the lowest price elasticities

If tax goal is efficiency...

0.2, 0.5

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

- producers are paying all of the tax

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 more of the tax than are the consumers

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

consumers; zero

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

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 _____. A) elastic; elastic B) inelastic; inelastic C) elastic; inelastic D) inelastic; elastic

regressive

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

inelastic; inelastic

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

Depends on income from wages and investments

Income Tax

Depends on the earnings an employer pays an employee

Payroll Tax

A tax that rises more than in proportion to income (takes a larger share of income from people with high-income)

Progressive tax

Depends on the value of property such as a home

Property tax

takes the same percentage of the base regardless of the tax payer's income or wealth

Proportional tax( flat tax):

That consumers would pay a higher price and producers would sell fewer of these CDs and CD players than before the tax

Recently, the government considered adding an excise tax on CDs that can be used to record music and CD players that can record discs. If this tax were enacted, the MOST likely effect would be: -an increase in economic activity due to the tax. -that consumers would pay a lower price and producers would receive a higher price for these CDs and CD players than before the tax. -no change in consumption or the prices paid by consumers of these CDs and CD players. -that consumers would pay a higher price and producers would sell fewer of these CDs and CD players than before the tax.

Rises less than in proportion to income (takes a smaller share of income form high-income taxpayers)

Regressive Tax:

the prices of one good in terms of another in international markets (no country pays a higher relative price than the opportunity cost of obtaining the good in autarky)

Relative Prices:

Opportunity costs are constant so the PPF is a straight line

Ricardian Model:

Depends on the value of goods sold

Sales Tax

Tax T x (Qe-Qt)

Size of deadweight loss =

Greater than its average tax rate

Suppose Governor Meridias decides to initiate a state-level income tax. The first $50,000 of household income is tax-free, while any income above $50,000 is taxed at 10%. The marginal tax rate for a household earning $75,000 is

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.

A) Lower the profits of ice cream suppliers

Suppose the government decides to fight obesity in America by imposing an excise taxbased on the saturated fat content of food. The most likely effect of this tax would be to: A) lower the profits of ice cream suppliers. B) decrease revenue for the government. C) decrease black market activity. D) raise the profits of ice cream suppliers.

C) The price of sweaters will increase by less than $10

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping: A) the price of sweaters will increase by $10. B) consumers of sweaters will bear the entire burden of the tax. C) the price of sweaters will increase by less than $10 D) the price of sweaters will decrease by $10

Increase by less than $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

A) Yacht builders will pay more.

Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticityof supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who willpay more of the tax? A) Yacht builders will pay more. B) Yacht buyers will pay more. C) Yacht builders and buyers will pay equally. D) It's impossible to tell without additional information.

True

T/F An excise tax causes a loss in efficiency because taxes distort incentives.

True

T/F Overall, the taxes collected by the federal government are progressive.

False

T/F 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)

True

T/F The marginal tax rate for a family income equals the personal income tax rate.

Usually a monetary measure, such as income or property value, that determines how much tax an individual or firm pays

Tax Base:

Specifies how the tax depends on the tax base, usually a %

Tax Structure

Gasoline

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

B) Excise Tax

Taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholicbeverages are called: A) personal income taxes. B) excise taxes. C) property taxes. D) sales taxes.

marginal

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

B) False

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

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

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.

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

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

C) Price paid by consumers does not change

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

The number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

The deadweight loss from an excise tax comes about because

C) inelastic, inelastic

The governor wants to levy a $1 excise tax on some good—he doesn't care which—buthe does want to minimize the deadweight loss. The deadweight loss will be least whenthe demand curve is _____ and the supply curve is _____. A) elastic; elastic B) elastic; inelastic C) inelastic; elastic D) inelastic; inelastic

A) Marginal Tax

The percentage of an increase in a taxpayer's income that is taxed away is the _____ rate. A) marginal tax B) tax C) total tax D) lower tax

lump-sum tax

The same for everyone regardless of any actions people take

the benefits principle and the ability-to-pay principle

The two principles of tax fairness are:

ability-to-pay principle

Those with greater ability to pay a tax should pay more taxes

is a tax that depends on an individuals wealth

Wealth Tax

D) consumer surplus falls, producer surplus falls, and a deadweight loss occurs.

When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve: A) consumer surplus falls. B) producer surplus falls. C) a deadweight loss occurs. D) consumer surplus falls, producer surplus falls, and a deadweight loss occurs.

.D) prevention of transactions because of the cost of the tax.

When the government imposes an excise tax, the deadweight loss is caused by: A) equal the tax revenue paid to the government. B) be greater than the tax revenue paid to the government. C) be less than the tax revenue paid to the government .D) prevention of transactions because of the cost of the tax.

A) a tax of $0.41 per gallon of gas

Which of the following is an excise tax? A) a tax of $0.41 per gallon of gas B) a tax of 12.4% of your wages C) a tax on the value of your property D) a one-time local per capita tax of $50

Individual Income

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

benefits

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

Revenue =

area of the distance between the two prices (height) x (length/ quantity)

total inefficiency

deadweight loss + administrative costs

C) A decrease in producer surplus

f the government removed the excise tax on gasoline, assuming that neither demand norsupply is perfectly inelastic, which of the following would NOT occur? A) an increase in consumer surplus B) an increase in producer surplus C) a decrease in producer surplus D) an increase in total surplus

B) Rate

he amount of tax levied per unit of good or service is called the tax: A) incidence. B) rate. C) revenue. D) surplus.

most impact when the good is elastic demand and elastic supply

if the tax goal is to decrease harmful use...

Goods and services purchased from abroad

imports:

Administrative Costs

the resources used for tax collection, for the method of payment, and for any attempts to evade the tax

tax * quantity tax

total tax revenue is