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Exam 12: The Design of the Tax System

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Question 171

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Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a "fat tax" of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

A) $4, and the deadweight loss comes from both Luke and Leia.
B) $4, and the deadweight loss comes only from Luke because he does not buy gelato after the tax.
C) $2, and the deadweight loss comes from both Luke and Leia.
D) $2, and the deadweight loss comes only from Luke because he does not buy gelato after the tax.

E) B) and C)
F) A) and B)

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Question 172

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Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000. For a person earning $100,000, the marginal tax rate is

A) 30 percent, and the average tax rate is 50 percent.
B) 30 percent, and the average tax rate is 36 percent.
C) 50 percent, and the average tax rate is 40 percent.
D) 50 percent, and the average tax rate is 36 percent.

E) All of the above
F) B) and C)

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Question 173

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The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?

When the marginal tax rate equals the average tax rate, the tax is

What are the three categories of the costs of taxes to taxpayers?

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 correct?

If a poor family has three children in public school and a rich family has two children in private school, the ability-to-pay principle would suggest that

​Which of the following tax structures is potentially consistent with the concept of vertical equity?

In 2011, social insurance taxes represented approximately what percentage of total receipts for the federal government?

Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems exhibits vertical equity?

If revenue from a cigarette tax is used to pay for healthcare for people with lung cancer, the cigarette tax may be justified on the basis of

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

Suppose a recent increase in federal gasoline taxes is estimated to cause a $150 million reduction in the total surplus (consumer plus producer surplus) in the gasoline market. If tax revenues increased by $100 million, what is the deadweight loss associated with the tax? As a result of the tax, 10,000 people sold their cars and started riding their bicycles to work. How much of the burden of the deadweight loss is incurred by the bicycle riders?

Which tax system requires higher-income taxpayers to have lower tax rates, even though they pay a larger amount of tax when compared to lower-income taxpayers?

Table 12-5 -Refer to Table 12-5. What is the marginal tax rate for a person who makes $37,000?

Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Bill is a single person whose taxable income is $35,000 a year. What happened to his average tax rate between 2012 and 2013?

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

State and local governments generate revenue from all of the following sources except

Table 12-5 -Refer to Table 12-5. What is the marginal tax rate for a person who makes $120,000?

The benefits principle is used to justify