Question 1

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Accepted Answer

A)  is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy.
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another.
C)  violates the benefits principle of taxation.
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.E) B) and D)
F) A) and B)

Question 2

Which of the following statements is correct?

Accepted Answer

A)  A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers.
B)  A general sales tax on food is regressive when middle income taxpayers spend a smaller proportion of their income on food than high-income taxpayers.
C)  A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than middle income taxpayers.
D)  A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than low-income taxpayers.E) All of the above
F) B) and C)

Question 3

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?

Accepted Answer

A)  Other people who choose to purchase large boats will incur the cost of the deadweight loss of the tax.
B)  There are no deadweight losses as long as some people still choose to purchase large boats.
C)  In order to determine the size of the deadweight loss, we must add the revenues from the tax to the loss in Carlos's consumer surplus.
D)  Carlos is worse off, and his loss of welfare is part of the deadweight loss of the tax.E) All of the above
F) A) and B)

Question 4

Table 12-25 
-Refer to Table 12-25. Which plan illustrates a proportional tax?

Accepted Answer

Plan B illustrates a proportio...

Question 5

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Accepted Answer

A)  0%
B)  10%
C)  More than 10%
D)  The marginal tax rate cannot be determined without knowing the entire tax schedule.E) A) and B)
F) All of the above

Question 6

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Accepted Answer

Some economists believe that t...

Question 7

Vertical equity states that taxpayers with a greater ability to pay taxes should

Accepted Answer

A)  contribute a decreasing proportion of each increment in income to taxes.
B)  contribute a larger amount than those with a lesser ability to pay.
C)  be less subject to administrative burdens of a tax.
D)  be less subject to tax distortions that lead to deadweight losses.E) A) and D)
F) B) and C)

Question 8

​Which of the following is an example of a tax based on the benefits principle?

Accepted Answer

A)  ​An income tax
B)  ​A lump-sum tax assessed on household in town to finance the construction of soccer fields
C)  ​A gasoline tax imposed by a city to be used to upgrade facilities local high school
D)  ​A toll roadE) None of the above
F) B) and C)

Question 9

If a tax takes a constant fraction of income as income rises, it is

Accepted Answer

A)  regressive.
B)  proportional.
C)  progressive.
D)  based on the ability-to-pay principle.E) All of the above
F) A) and C)

Question 10

Table 12-15 
-Refer to Table 12-15. In this tax system which of the following is possible?

Accepted Answer

A)  vertical and horizontal equity
B)  vertical but not horizontal equity
C)  horizontal but not vertical equity
D)  neither horizontal nor vertical equityE) All of the above
F) C) and D)

Question 11

Which of the following statements is correct?

Accepted Answer

A)  A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers.
B)  A general sales tax on food is regressive when middle income taxpayers spend a smaller proportion of their income on food than high-income taxpayers.
C)  A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than middle income taxpayers.
D)  A general sales tax on food is regressive when high-income taxpayers spend a larger proportion of their income on food than low-income taxpayers.E) A) and D)
F) B) and D)

Question 12

Who pays a corporate income tax?

Accepted Answer

A)  owners of the corporation
B)  customers of the corporation
C)  workers of the corporation
D)  All of the above are correct.E) All of the above
F) A) and C)

Question 13

In designing a tax system, policymakers have two objectives that are often conflicting. They are

Accepted Answer

A)  maximizing revenue and minimizing costs to taxpayers.
B)  efficiency and minimizing costs to taxpayers.
C)  efficiency and equity.
D)  maximizing revenue and reducing the national debt.E) All of the above
F) None of the above

Question 14

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

Accepted Answer

A)  6.1 percent
B)  44 percent
C)  55 percent
D)  61 percentE) B) and D)
F) A) and D)

Question 15

In order to determine tax incidence, one must

Accepted Answer

A)  consider issues of equity.
B)  also determine the legal liability of the tax.
C)  evaluate where the tax burden eventually falls.
D)  use the "flypaper theory" of taxation.E) All of the above
F) B) and D)

Question 16

A lump-sum tax would take different amounts from the poor and the rich.

Accepted Answer

A) True 
 B)False

Question 17

Scenario 12-2
Suppose that Bob places a value of $10 on a movie ticket and that Lisa places a value of $7 on a movie ticket. In addition, suppose the price of a movie ticket is $5.
-Refer to Scenario 12-2. Suppose the government levies a tax of $1 on a movie ticket and that, as a result, the price of a movie ticket increases to $6. If Bob and Lisa both purchase a movie ticket, what is the deadweight loss from the tax?

Accepted Answer

A)  $0
B)  $1
C)  $2
D)  $3E) None of the above
F) C) and D)

Question 18

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Accepted Answer

Horizontal equity is the idea that taxpa...

Question 19

Wilma values a decorative garden rock at $15, while Fred values it at $10. The price of a decorative garden rock is $9. If the government imposes a $2 tax per decorative garden rock and the price of the rock rises to $11, what part of the deadweight loss comes from Wilma, and what part comes from Fred?

Accepted Answer

A)  none comes from Wilma; $1 comes from Fred
B)  none comes from Wilma; $3 comes from Fred
C)  $2 comes from Wilma; $1 comes from Fred
D)  $4 comes from Wilma; $3 comes from FredE) All of the above
F) B) and C)

Question 20

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Accepted Answer

A)  an application of the benefits principle of taxation.
B)  a violation of horizontal equity.
C)  a violation of vertical equity.
D)  an application of egalitarian tax rules.E) B) and C)
F) A) and B)

Exam 12: The Design of the Tax System

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Correct Answer
verified

A lump-sum tax would take different amounts from the poor and the rich.

Correct Answer
verified

Table 12-25 -Refer to Table 12-25. Which plan illustrates a proportional tax?

Correct Answer
verified
Plan B illustrates a proportio...
View Answer

Which of the following statements is correct?

Correct Answer
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Correct Answer
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In order to determine tax incidence, one must

Correct Answer
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Table 12-15 -Refer to Table 12-15. In this tax system which of the following is possible?

Correct Answer
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Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Correct Answer
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Correct Answer
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Correct Answer
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James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

Correct Answer
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In designing a tax system, policymakers have two objectives that are often conflicting. They are

Correct Answer
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Which of the following statements is correct?

Correct Answer
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Who pays a corporate income tax?

Correct Answer
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Which of the following is an example of a tax based on the benefits principle?

Correct Answer
verified

Vertical equity states that taxpayers with a greater ability to pay taxes should

Correct Answer
verified

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Correct Answer
verified

If a tax takes a constant fraction of income as income rises, it is

Correct Answer
verified

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Correct Answer
verified
Horizontal equity is the idea that taxpa...
View Answer

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Correct Answer
verified
Some economists believe that t...
View Answer

Exam 12: The Design of the Tax System

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Correct AnswerverifiedShow Answer

A lump-sum tax would take different amounts from the poor and the rich.

Correct AnswerverifiedShow Answer

Table 12-25 -Refer to Table 12-25. Which plan illustrates a proportional tax?

Correct AnswerverifiedPlan B illustrates a proportio...View AnswerShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In order to determine tax incidence, one must

Correct AnswerverifiedShow Answer

Table 12-15 -Refer to Table 12-15. In this tax system which of the following is possible?

Correct AnswerverifiedShow Answer

Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns $40,000 during the year?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

Correct AnswerverifiedShow Answer

In designing a tax system, policymakers have two objectives that are often conflicting. They are

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Who pays a corporate income tax?

Correct AnswerverifiedShow Answer

​Which of the following is an example of a tax based on the benefits principle?

Correct AnswerverifiedShow Answer

Vertical equity states that taxpayers with a greater ability to pay taxes should

Correct AnswerverifiedShow Answer

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Correct AnswerverifiedShow Answer

If a tax takes a constant fraction of income as income rises, it is

Correct AnswerverifiedShow Answer

Define horizontal equity and briefly describe some features of the U.S. federal income tax system that may interfere with achieving it.

Correct AnswerverifiedHorizontal equity is the idea that taxpa...View AnswerShow Answer

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Correct AnswerverifiedSome economists believe that t...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Plan B illustrates a proportio...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Which of the following is an example of a tax based on the benefits principle?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Horizontal equity is the idea that taxpa...
View Answer

Correct Answer
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Some economists believe that t...
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