Macroeconomics 4.4 Studyguide

1) Tax incidence is the actual division of the A) burden of the tax between buyers and sellers in a market. B) tax revenues between government agencies. C) tax revenues between the federal government and state governments. D) population into different tax brackets.

A

13) Suppose an excise tax of $0.75 is imposed on every pack of cigarettes sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph? A) The supply curve for cigarettes would shift to the left by $0.75. B) The supply curve for cigarettes would shift to the left by less than $0.75. C) The supply curve for cigarettes would shift to the left by more than $0.75. D) The supply curve for cigarettes would shift to the right by $0.75.

A

27) Is there a difference between theȱȈtrue burdenȈȱof a tax and who is legally required to pay a tax? Briefly explain.

Answer: There is a difference. The true burden of a tax refers to the tax incidence, or how much of a tax is ultimately paid by the sellers and how much is paid by the buyers.ȱȱThe incidence of a tax does not depend on whether the government collects a tax from the buyers of a good or from the sellers.

14) In Singapore the government places a $5,000 tax on the buyers of new automobiles. After the purchase of a new car, a buyer must pay the government $5,000.ȱȱHow would the imposition of the tax on buyers be illustrated in a graph? A) The tax will shift the demand curve to the right by $5,000. B) The tax will shift the demand curve to the left by $5,000. C) The tax will shift both the demand and supply curve to the right by $5,000. D) The tax will shift the supply curve to the left by $5,000.

B

17) ȈTaxes are what we pay for a civilized society.ȈȱȱThis statement was made by A) Adam Smith. B) Oliver Wendell Holmes. C) Herbert Hoover. D) Franklin Roosevelt.

B

9) Buyers will bear the entire burden of a unit tax if the demand curve for a product is A) horizontal. B) vertical. C) downward sloping. D) upward sloping.

B

16) FICA is a payroll tax imposed on employers and workers that is used to fund Social Security and Medicare.ȱȱWhich of the following statements regarding the tax is true? A) Employers are required to pay a greater share of the tax than workers but most economists believe the burden of the tax is shared equally. B) Congress wanted the burden of the tax to be greater for employers than for workers. C) Most economists believe the burden of the tax falls almost entirely on workers. D) Most economists believe the burden of the tax falls mostly on employers.

C

19) An efficient tax is A) a tax that imposes an equal tax burden on buyers and sellers. B) a tax that raises a maximum amount of revenue. C) a tax that imposes a small excess burden relative to the tax revenue that it raises. D) a tax that is used to fund research and development of new technology.

C

8) The government proposes a tax on halogen light bulbs.ȱȱSellers will bear the entire burden of the tax if the A) supply curve of halogen bulbs is horizontal. B) demand curve for halogen bulbs is vertical. C) demand curve for halogen bulbs is horizontal. D) demand curve is downward sloping and the supply curve is upward sloping

C

10) Suppose the demand curve for a product is downward sloping and the supply curve is upward sloping. If a unit tax is imposed in the market for this product, A) sellers bear the entire burden of the tax. B) the tax burden will be shared among the government, buyers and sellers. C) buyers bear the entire burden of the tax. D) the tax burden will be shared by buyers and sellers.

D

15) A tax is imposed on employers and workers that are used to fund Social Security and Medicare. This tax is sometimes referred to as A) the Income Security Tax. B) the federal income tax. C) the ACIF. D) the payroll tax.

D

18) Economists have shown that the burden of a tax is A) greater on the buyer when the tax is collected from the buyer. B) greater on the seller when the tax is collected from the seller. C) greater on the buyer when the tax is collected from the seller and greater on the seller when the tax is collected from the buyer. D) the same whether the tax is collected from the buyer or the seller

D

) If buyers were required to pay the federal excise tax on gasoline directly to the government, the demand curve for gasoline would shift up.

FALSE

24) For most goods and services, the burden of a tax is on the sellers.

FALSE

25) If a tax is imposed on a product, the buyer will always bear the entire burden of the tax.

FALSE

20) The division of the burden of a tax between buyers and sellers in a market is called tax incidence.

TRUE

21) In the market for gasoline, an increase in the federal excise tax on gasoline would shift the supply curve up.

TRUE

23) A tax is efficient if it imposes a small excess burden relative to the tax revenue it raises.

TRUE