CHAPTER 8
Please classify the following statements. excise taxes sales taxes property taxes payroll taxes
1) taxes on specific goods, such as cigarettes or gasoline 2)taxes on the retail sale of most goods 3) taxes on homes and the land on which they are built and taxes on office buildings and factories 4)taxes that fund Medicare and Social Security
If the government guarantees sugar farmers a price of $1 per pound when the market equilibrium price is actually $0.50 per pound, which of the following will occur? -A surplus of sugar will occur, decreasing inefficiency. -A shortage of sugar will occur, decreasing inefficiency. -A shortage of sugar will occur, increasing inefficiency. -A surplus of sugar will occur, increasing inefficiency.
A surplus of sugar will occur, increasing inefficiency.
Which would be the LEAST likely result of a price ceiling imposed in the market for gasoline? -Competition in the market will be eliminated. -Some buyers will get less gasoline than they want. -Buyers will bribe station attendants to fill up their tanks. -Buyers will line up to buy gasoline.
Competition in the market will be eliminated.
Which of the following statements is true? -Economists believe that average tax rates have a greater influence on behavior than marginal tax rates. -Economists believe that marginal and average tax rates influence behavior to the same extent. -Economists believe that neither marginal nor average tax rates have any influence on behavior. -Economists believe that marginal tax rates have a greater influence on behavior than average tax rates.
Economists believe that marginal tax rates have a greater influence on behavior than average tax rates.
Which scenario describes the operation of a tariff? -Norway becomes an exporter of fireworks after it opens up trade with the world market and realizes its market price is lower than the world price. -Angola opens up trade with the world corn market and decides to maintain its previous market price. -Consumers in Turkey, who pay $4 per cup of tea, demand that the government open up trade with the world market because they know the world price is $2 per cup. -Ireland taxes the import of potatoes in order to keep domestic farmers in business.
Ireland taxes the import of potatoes in order to keep domestic farmers in business.
Which of these statements explains why price ceilings result in lost gains from trade? -Neither buyers nor sellers want to trade subject to a price ceiling that results in lost gains from trade. -Buyers want to trade, but sellers are indifferent at the lower prices. -Buyers and sellers want to trade, but the threat of fines or jail time prevents them from doing so. -Sellers want to trade, but buyers prefer the lower prices.
Buyers and sellers want to trade, but the threat of fines or jail time prevents them from doing so.
A tariff results in a higher: I. consumer surplus. II. producer surplus. III. government revenue. -II and III only -I and II only -I and III only -I, II, and III
II and III only
A family that earns $20,000 a year pays $200 a year in city wage taxes. A family that earns $40,000 a year pays $1,600 a year in city wage taxes. The city wage tax is -a progressive tax. -a benefits-received tax. -a regressive tax. -a proportional tax.
a progressive tax
Which is NOT an effect of a tariff? -decreased imports -a domestic market price above world market price -increased demand -deadweight loss
increased demand
Price floors create ____ if they are set ___the equilibrium price.
surpluses; above
If the government eliminated tariffs: -the gains in consumer surplus would outweigh the losses in producer surplus. -the gains in producer surplus would equal the gains in consumer surplus. -the gains in consumer surplus would equal the losses in producer surplus. -the gains in producer surplus would outweigh the losses in consumer surplus.
the gains in consumer surplus would outweigh the losses in producer surplus.
Government sometimes supports protectionist tariffs because: -the losses are spread over millions of consumers so the cost per consumer is small. -producers lose less than what consumers gain. -the losses are spread over millions of producers, so the cost per producer is small. -producers always gain much more than what consumers altogether lose.
the losses are spread over millions of consumers so the cost per consumer is small.
A price ceiling is: -the average price that a seller can charge in a market. -any price above the equilibrium price. -the maximum price that a seller can charge in a market. -the minimum price that a seller can charge in a market.
the maximum price that a seller can charge in a market.
Suppose Congress imposes a price ceiling of $5 per ATM transaction. If the average market-clearing price for an ATM transaction is $2, then: -there will be excess demand in the market. -the price ceiling will not be binding. -there will be excess supply in the market. -the supply price will be higher than the demand price.
the price ceiling will not be binding.
Shortages in economic markets are inefficient because: -they lead to increases in quality over and above what would be present in an uncontrolled market. -time spent waiting in line is wasted time and hence a wasted resource. -demanders are willing to pay more for the good, but suppliers are unwilling to supply any more of the good even at higher prices. -consumers' willingness to pay is less than the controlled price.
time spent waiting in line is wasted time and hence a wasted resource.
The average tax rate can be calculated by which of the following formulas? -the change in taxable income divided by the change in taxes due -the change in taxes due divided by the change in taxable income -total taxes due divided by total taxable income -total taxable income divided by total taxes due
total taxes due divided by total taxable income
A price floor or a price ceiling is an example of: -a quantity regulation. -a price control. -a market equilibrium price. -a quota.
a price control.
In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). a. Where will it be easier to find parking: in Freedonia or Meterville? It will be easier in: b. One town will tend to attract shoppers who hate driving around looking for parking. Which one? c. Why will the town from part b also attract shoppers with higher incomes? Higher‑income shoppers have _____and a ______ opportunity cost of time.
a: Meterville. b: Meterville. c:more money to spend on meters; higher
A binding price floor is: -always above the equilibrium price. -always below the equilibrium price. -always at the equilibrium price. -the maximum price that a seller can charge in a market.
always above the equilibrium price.
Which of the following are price floors? (multiple answers) -an agricultural price support -a minimum unit price on alcohol -price controls on staples, e.g., bread -rent control
an agricultural price support a minimum unit price on alcohol
Which of these is NOT a typical consequence of rent control? -a reduction in the quantity of apartments rented below the efficient level -an efficient allocation of apartments among would-be renters -wasted time and effort, as people search for apartments -poor maintenance of apartments by landlords
an efficient allocation of apartments among would-be renters
A tariff imposed on German imports into the United States tends to _____ American producers and _____ German producers. -penalize; benefit. -benefit; penalize -penalize; penalize -benefit; benefit
benefit; penalize
Suppose that the demand for and supply of a good are each neither perfectly inelastic nor perfectly elastic. If a tax on consumers of the good is imposed, the tax is paid by: -the buyers only. -both the buyers and the sellers. -the sellers only. -the buyers only if demand for the good increases.
both the buyers and the sellers.
Price ceilings tend to create shortages when used to -create a price above equilibrium. -bring down price to the level of marginal cost. -reduce exploitative use of market power. -bring down price in a competitive market.
bring down price in a competitive market.
A tax is levied on consumers. The incidence of the tax: -falls more on the consumer than on the producer. -falls more on the producer than the consumer. -is shared between consumers and producers. -cannot be determined without more information.
cannot be determined without more information
Raising the minimum wage is NOT an effective way to eliminate poverty because increases in the minimum wage: -do not increase incomes. -create higher unemployment. -create incentives for workers to exit the labor force. -tend to simply increase birth rates among low-income households.
create higher unemployment.
When a price ceiling is in effect, goods and services: -are not necessarily supplied by their lowest-cost producer. -are still allocated efficiently. -do not necessarily flow to their highest-valued use. -are not necessarily supplied by their lowest-cost producer, nor do they flow to their highest-valued use.
do not necessarily flow to their highest-valued use.
The statutory burden of a tax: -does not play a role in determining where demand or supply shifts as a result of the tax. -does not change the incidence of the tax. -determines who finally pays the entire tax being levied. -always leads to an equal allocation of the tax between buyer and seller.
does not change the incidence of the tax.
The higher the minimum wage is above the equilibrium wage, the: -more likely it is for students to stay in high school and receive their diploma. -greater is the number of low-skilled unemployed workers. -smaller is the number of low-skilled unemployed workers. -smaller is the labor surplus among teenagers.
greater is the number of low-skilled unemployed workers.
The _____ of an excise tax depends on the _____ of the taxed good's supply and demand curves. The economic entity with the ____ in terms of their production and consumption ____ incur the largest burden of excise taxes.
incidence; price elasticity least flexibility; substitutes
Suppose the government imposes a $6 per month tax on cell phone usage. If the demand for cell phone usage is perfectly inelastic, and the supply curve is elastic (but not perfectly elastic), then the price of cell phone usage will: -increase by more than $6. -increase by exactly $6. -increase by less than $6. -remain constant.
increase by exactly $6
Suppose the government levies a $6 per month tax on cell phone usage. If the demand for cell phone service is relatively (but not perfectly) inelastic, and the supply is relatively (but not perfectly) elastic, then the price of cell phone usage will: -increase by more than $6. -increase by exactly $6. -increase by less than $6. -remain constant.
increase by less than $6.
Suppose that the government wants to support local organic farmers with a price support system. If so, we would expect a market price support policy that establishes a binding price floor to: -decrease the price paid by consumers. -push the price paid by consumers to the equilibrium level. -increase the price received by farmers. -decrease the price received by farmers.
increase the price received by farmers.
A tariff _____ the price received by domestic producers and _____ the price paid by domestic consumers. -decreases; increases -increases; decreases -decreases; decreases -increases; increases
increases; increases
The city of Mumbai in India imposed rent controls on apartments in 1947. Despite inflation and changes in land value, allowable rents have hardly increased since that time! Use what you know about rent controls to speculate about the quality of rent‑controlled buildings in Mumbai. Rent in Mumbai: -has met the market level as the demand for housing has risen with population. -is far below the equilibrium level and rental units are not being maintained. -is below market levels, but landlords still have an incentive to maintain their properties. -has fallen below the equilibrium rate in nominal terms, but the real rental rate is at equilibrium.
is far below the equilibrium level and rental units are not being maintained.
The long-run effect of laws that raise the minimum wage is that -labor-saving devices are quickly adopted to replace labor. -the demand for minimum wage workers rises and more minimum wage workers are hired. -any short-run effect disappears and there is no long-run impact. -labor-saving devices and management practices are slowly adopted.
labor-saving devices and management practices are slowly adopted.
Some economists compare the destructiveness of rent control to that of aerial bombardment because it causes: -landlords to neglect their buildings, allowing them to deteriorate over time. -there to be unexploited gains from trade. -apartments to go to renters who do not have the highest-valued use of the apartments. -high search costs in apartment hunting.
landlords to neglect their buildings, allowing them to deteriorate over time.
Price ceilings impose costs on society because they: -ensure that everybody who wants the good will get it. -may result in black markets, where prices are lower than the market-determined price would be. -lead to a smaller quantity offered in the market. -lead to a higher quantity offered in the market.
lead to a smaller quantity offered in the market.
If an American teenager will work for $5.00 an hour and an employer is willing to pay that wage, but the minimum wage is $7.25 an hour and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences: -lost gains from trade. -reductions in product quality. -resource misallocations. -wasteful increases in quality.
lost gains from trade.
Suppose the tax rate on the first $10,000 income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $30,000; and 40 percent on any income over $80,000. Family A has income of $50,000. What is the marginal and average tax rate for Family A? -marginal—15 percent; average—25 percent -marginal—10 percent; average—12 percent -marginal—20 percent; average—12 percent -marginal—25 percent; average—15 percent
marginal—20 percent; average—12 percent
The minimum wage is an example of a(n): -efficient policy. -price ceiling. -price floor. -wage subsidy.
price floor.
If prices are not allowed to rise because of a price ceiling: -suppliers have an incentive to provide a high level of customer service. -a shortage will develop, but only temporarily until markets adjust to the lower prices. -suppliers will compensate for the lower price by increasing the quality of their goods. -prices do not provide the correct information about consumers' valuation of the good.
prices do not provide the correct information about consumers' valuation of the good.
For Uber rides, which have a highly elastic supply and a downward-sloping demand curve: -producers will bear most of the burden of a tax. -producers will bear only a small proportion of the burden of a tax. -consumers and producers will split the burden of a tax in half. -consumers will not bear any of the burden of a tax.
producers will bear only a small proportion of the burden of a tax.
The marginal tax rate and the average tax rate are the same under a -regressive income tax system. -proportional income tax system. -progressive income tax system. -marginal tax system.
proportional income tax system.
A new tax policy has been passed in the country of Caldeconnia, a constitutional monarchy located high up in the Stap Mountain Range. This new policy states that 66% of the wages of every worker must go to taxes, regardless of how much they earn. This tax is an example of a(n) -corporate income tax. -progressive tax. -proportional tax. -excise tax.
proportional tax.
The list of problems that can be triggered by price ceilings does NOT include -reduced demand. -reduced incentive for efficient production. -less incentive for maintaining product quality. -shortages.
reduced demand
The incidence of a tax: -is a measure of the revenue the government receives from it. -refers to who writes the check to the government. -refers to who really bears the burden of the tax. -is a measure of the deadweight loss generated by the tax.
refers to who really bears the burden of the tax.
Suppose the government of the oil-rich country Saudi Arabia sets the price of gasoline at $0.25 per gallon when the market price is $1.50. The Saudi government's actions will: -improve efficiency, because the low prices will force producers to find cheaper production methods. -result in gasoline shortages, even in an oil-rich country -cause surplus of gasoline, even in an oil-rich country.. -ensure an equitable distribution of resources in the gasoline market.
result in gasoline shortages, even in an oil-rich country
Prior to any taxes, the equilibrium price of bottled water is $5 per gallon. Then a $1-per-gallon tax is levied. As a result, the price of bottled water rises to $5.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers. $0.25; $0.75 $0.50; $0.50 $0; $1.00 $0.75; $0.25
$0.75; $0.25
The average tax on a professor's income of $100,000 is 18%, and the marginal tax rate above $100,000 is 45%. If the professor teaches during the summer and earns an additional $10,000 (bringing her total earnings for the year to $110,000), how much of the summer income does she keep after paying taxes? $4,500 $6,300 $1,800 $5,500
$5,500
Suppose that the world price of TVs is $400, and the government imposes a $100 tariff. The new price domestic consumers pay for a TV is: $400. $700. $600. $500.
$500.
Tina Taxpayer makes $75,000 a year. What are her average and marginal tax rates if she is required to pay a lump-sum tax of $10,000? Submit your answers as percentages, and round to two decimal points. Tina's average tax rate: Tina's marginal tax rate:
13.33%; 0
