Question 1

Taxes create deadweight losses because they

Accepted Answer

A)  reduce profits of firms.
B)  distort incentives.
C)  cause prices to rise.
D)  create revenue for the government.E) A) and B)
F) A) and C)

Question 2

Many economists believe that

Accepted Answer

A)  the corporate income tax satisfies the goal of horizontal equity.
B)  the corporate income tax does not distort the incentives of customers.
C)  the corporate income tax is more efficient than the personal income tax.
D)  workers and customers bear much of the burden of the corporate income tax.E) None of the above
F) A) and B)

Question 3

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Accepted Answer

A)  20 percent
B)  25 percent
C)  30 percent
D)  36.67 percentE) B) and D)
F) All of the above

Question 4

Which of the following is not an advantage of a lump-sum tax in comparison to other types of taxes?

Accepted Answer

A)  It would not cause deadweight loss.
B)  It imposes a minimal administrative burden on taxpayers.
C)  It is more equitable.
D)  It is more efficient.E) A) and B)
F) All of the above

Question 5

Which of the following statements is correct?

Accepted Answer

A)  Equity is more important than efficiency as a goal of the tax system.
B)  Efficiency is more important than equity as a goal of the tax system.
C)  Both equity and efficiency are important goals of the tax system.
D)  Neither equity nor efficiency is an important goal of the tax system.E) A) and B)
F) A) and C)

Question 6

Deadweight losses represent the

Accepted Answer

A)  inefficiency that taxes create.
B)  shift in benefit from producers to consumers.
C)  part of consumer and producer surplus that is now revenue to the government.
D)  loss in profit to producers when quantity demanded falls as a result of higher prices.E) B) and D)
F) All of the above

Question 7

The "flypaper theory" of taxation suggests that

Accepted Answer

A)  the individual or corporation that actually pays the tax is able to shift the burden of the tax to others.
B)  the benefits principle of taxation is not a viable option for policymakers.
C)  taxes are never paid by the most wealthy citizens.
D)  the individual or corporation who actually pays the tax cannot share the burden of the tax.E) A) and B)
F) A) and C)

Question 8

Poor countries such as India and Pakistan usually have low tax burdens.

Accepted Answer

A) True 
 B)False

Question 9

A lump-sum tax

Accepted Answer

A)  is most frequently used to tax real property.
B)  does not distort incentives.
C)  distorts incentives more than any other type of tax.
D)  is the most fair tax.E) B) and D)
F) All of the above

Question 10

Suppose that the government collected taxes in the following fashion: people who earn less than $50,000 pay 25 percent in taxes,people who earn between $50,000 and $100,000 pay 35 percent in taxes,people who earn between $100,000 and $200,000 pay 30 percent in taxes,and people who earn more than $200,000 pay 28 percent in taxes.Which of the following statements is not correct?

Accepted Answer

A)  The tax system is proportional for income levels less than $50,000 and regressive for income levels above $50,000.
B)  The tax system is regressive for income levels less than $100,000 and progressive for income levels above $100,000.
C)  The tax system is progressive for income levels less than $100,000 and regressive for income levels above $100,000.
D)  The tax system is progressive for income levels less than $50,000 and proportional for income levels above $100,000.E) None of the above
F) A) and B)

Question 11

Tax evasion is legal,but tax avoidance is illegal.

Accepted Answer

A) True 
 B)False

Question 12

An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

Accepted Answer

A) True 
 B)False

Question 13

If a tax system is designed so that individuals with higher incomes pay more in taxes than individuals with lower incomes,the system achieves vertical equity.

Accepted Answer

A) True 
 B)False

Question 14

Some states do not have a state income tax.

Accepted Answer

A) True 
 B)False

Question 15

The federal government finances budget deficits by

Accepted Answer

A)  selling stock, much like a corporation.
B)  printing additional currency.
C)  borrowing from the public.
D)  raising property taxes.E) All of the above
F) B) and C)

Question 16

Table 12-2
United States Income Tax Rates for a Single Individual, 2002 and 2003.
 
-Refer to Table 12-2.Surbhi is a single person whose taxable income is $150,000 a year.By how much is her income tax bill lowered because of the change in the tax rates between 2002 and 2003?

Accepted Answer

A)  $648.65
B)  $2,000
C)  $2,126.50
D)  $8,152.75E) B) and C)
F) A) and D)

Question 17

Because of Iceland's tax holiday in 1987 there was a

Accepted Answer

A)  temporary decrease in total work hours.
B)  permanent decrease in total work hours.
C)  permanent increase in both GDP and total work hours.
D)  temporary increase in both GDP and total work hours.E) None of the above
F) B) and D)

Question 18

Martavius faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.In addition,he must pay 5 percent of his income in state income tax and 15.3 percent of his labor income in federal payroll taxes.Marcus earns $70,000 per year in salary and another $20,000 per year in non-labor income.What is his average tax rate,and what is his marginal tax rate on his salary?

Accepted Answer

A)  His average tax rate is 17.19 percent, and the marginal tax rate on his salary is 55 percent.
B)  His average tax rate is 50.23 percent, and the marginal tax rate on his salary is 70.3 percent.
C)  His average tax rate is 53.63 percent, and the marginal tax rate on his salary is 70.3 percent.
D)  His average tax rate is 55.79 percent, and the marginal tax rate on his salary is 70.3 percent.E) C) and D)
F) B) and C)

Question 19

Most health care economists believe that it will be very difficult to stem the rise in health care costs because

Accepted Answer

A)  government intervention is unpopular with most citizens, especially the elderly.
B)  improvements in medical technology have not kept pace with technological improvements in other sectors of the economy.
C)  increased competition will increase rather than reduce costs.
D)  medical advances are providing better ways to extend and improve human lives but at very expensive costs.E) All of the above
F) B) and C)

Question 20

Taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages are called

Accepted Answer

A)  sales taxes.
B)  excise taxes.
C)  social insurance taxes.
D)  consumption taxes.E) B) and C)
F) C) and D)

Exam 12: The Design of the Tax System

Correct Answer
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Table 12-2 United States Income Tax Rates for a Single Individual, 2002 and 2003. -Refer to Table 12-2.Surbhi is a single person whose taxable income is $150,000 a year.By how much is her income tax bill lowered because of the change in the tax rates between 2002 and 2003?

Correct Answer
verified

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
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Many economists believe that

Correct Answer
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An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

Correct Answer
verified

Some states do not have a state income tax.

Correct Answer
verified

Poor countries such as India and Pakistan usually have low tax burdens.

Correct Answer
verified

Taxes create deadweight losses because they

Correct Answer
verified

The federal government finances budget deficits by

Correct Answer
verified

Correct Answer
verified

A lump-sum tax

Correct Answer
verified

Tax evasion is legal,but tax avoidance is illegal.

Correct Answer
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Because of Iceland's tax holiday in 1987 there was a

Correct Answer
verified

If a tax system is designed so that individuals with higher incomes pay more in taxes than individuals with lower incomes,the system achieves vertical equity.

Correct Answer
verified

Most health care economists believe that it will be very difficult to stem the rise in health care costs because

Correct Answer
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Deadweight losses represent the

Correct Answer
verified

The "flypaper theory" of taxation suggests that

Correct Answer
verified

Which of the following is not an advantage of a lump-sum tax in comparison to other types of taxes?

Correct Answer
verified

Taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages are called

Correct Answer
verified

Exam 12: The Design of the Tax System

Correct AnswerverifiedShow Answer

Table 12-2 United States Income Tax Rates for a Single Individual, 2002 and 2003. -Refer to Table 12-2.Surbhi is a single person whose taxable income is $150,000 a year.By how much is her income tax bill lowered because of the change in the tax rates between 2002 and 2003?

Correct AnswerverifiedShow Answer

Larry faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,10 percent on the next $10,000,15 percent on the next $10,000,25 percent on the next $10,000,and 50 percent on all additional income.If Larry earns $75,000,what is his average tax rate?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Many economists believe that

Correct AnswerverifiedShow Answer

An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

Correct AnswerverifiedShow Answer

Some states do not have a state income tax.

Correct AnswerverifiedShow Answer

Poor countries such as India and Pakistan usually have low tax burdens.

Correct AnswerverifiedShow Answer

Taxes create deadweight losses because they

Correct AnswerverifiedShow Answer

The federal government finances budget deficits by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A lump-sum tax

Correct AnswerverifiedShow Answer

Tax evasion is legal,but tax avoidance is illegal.

Correct AnswerverifiedShow Answer

Because of Iceland's tax holiday in 1987 there was a

Correct AnswerverifiedShow Answer

If a tax system is designed so that individuals with higher incomes pay more in taxes than individuals with lower incomes,the system achieves vertical equity.

Correct AnswerverifiedShow Answer

Most health care economists believe that it will be very difficult to stem the rise in health care costs because

Correct AnswerverifiedShow Answer

Deadweight losses represent the

Correct AnswerverifiedShow Answer

The "flypaper theory" of taxation suggests that

Correct AnswerverifiedShow Answer

Which of the following is not an advantage of a lump-sum tax in comparison to other types of taxes?

Correct AnswerverifiedShow Answer

Taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages are called

Correct AnswerverifiedShow Answer

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