Question 1

The deadweight loss of a tax is

Accepted Answer

A)  the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government.
B)  the improved efficiency created as people reallocate resources according to the tax incentive rather than the true costs and benefits.
C)  the loss in tax revenues.
D)  Both a and b are correct.E) A) and B)
F) None of the above

Question 2

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

Accepted Answer

A)  proportional.
B)  progressive.
C)  regressive.
D)  egalitarian.E) B) and C)
F) None of the above

Question 3

Athos, Porthos,and Aramis each like to take fencing lessons. The price of a fencing lesson is $11. Athos values a lesson at $16, Porthos at $14, and Aramis at $12. Suppose that if the government taxes fencing lessons at $2 each, the price will rise to $13. A consequence of the tax is that consumer surplus shrinks by

Accepted Answer

A)  $4 and tax revenues increase by $6, so there is a deadweight loss of $2.
B)  $6 and tax revenues increase by $6, so there is no deadweight loss.
C)  $5 and tax revenues increase by $6, so there is no deadweight loss.
D)  $5 and tax revenues increase by $4, so there is a deadweight loss of $1.E) B) and C)
F) A) and D)

Question 4

What are the characteristic(s) of an efficient tax system?

Accepted Answer

One tax system is more efficie...

Question 5

Vertical equity in taxation refers to the idea that people

Accepted Answer

A)  in unequal conditions should be treated differently.
B)  in equal conditions should pay equal taxes.
C)  should pay taxes based on the benefits they receive from the government.
D)  should pay a proportional tax rather than a progressive tax.E) A) and B)
F) B) and C)

Question 6

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is

Accepted Answer

A)  25 percent, and the average tax rate is 32.5 percent.
B)  25 percent, and the average tax rate is 36 percent.
C)  40 percent, and the average tax rate is 32.5 percent.
D)  40 percent, and the average tax rate is 36 percent.E) B) and C)
F) None of the above

Question 7

The ability-to-pay principle claims that a person should pay taxes according to

Accepted Answer

A)  the level of public education that the person has received throughout his lifetime.
B)  how many government services that person will receive.
C)  how well that person can shoulder the tax burden.
D)  the level of debt that the person has.E) B) and D)
F) C) and D)

Question 8

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Accepted Answer

A) True 
 B)False

Question 9

Table 12-19 
-Refer to Table 12-19. The tax system is

Accepted Answer

A)  progressive.
B)  regressive.
C)  proportional.
D)  lump sum.E) B) and C)
F) A) and C)

Question 10

The state government requires all persons to pay 5% of their incomes in income tax.This is an example of:

Accepted Answer

A)  ​The benefits principle
B)  ​a proportional tax
C)  ​a regressive tax
D)  ​a progressive taxE) A) and B)
F) A) and C)

Question 11

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

Accepted Answer

A)  the poor family should pay more in taxes to pay for public education than the rich family.
B)  the rich family should pay more in taxes to pay for public education than the poor family.
C)  the benefits of private school exceed those of public school.
D)  public schools should be financed by property taxes.E) A) and D)
F) C) and D)

Question 12

Table 12-4 
-Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?

Accepted Answer

A)  30%
B)  40%
C)  50%
D)  60%E) A) and C)
F) All of the above

Question 13

In order to construct a more complete picture of the economic burden of government across income classes, economists usually

Accepted Answer

A)  include tax payments as well as transfer payments received.
B)  focus only on the tax payments of wealthy tax payers.
C)  limit their analysis to taxes based on the ability-to-pay principle.
D)  focus their analysis on issues of tax efficiency.E) All of the above
F) B) and C)

Question 14

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Accepted Answer

A) True 
 B)False

Question 15

Taxes create deadweight loss when they

Accepted Answer

A)  distort behavior.
B)  cause the price of the product to increase.
C)  don't raise sufficient government revenue.
D)  cannot be computed easily.E) A) and B)
F) A) and C)

Question 16

Table 12-13
The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. 
-Refer to Table 12-13. In this economy Tax A exhibits

Accepted Answer

A)  horizontal and vertical equity.
B)  horizontal equity but not vertical equity.
C)  vertical equity but not horizontal equity.
D)  neither horizontal nor vertical equity.E) None of the above
F) A) and D)

Question 17

Lump-sum taxes are rarely used in the real world because

Accepted Answer

A)  while lump-sum taxes have low administrative burdens, they have high deadweight losses.
B)  while lump-sum taxes have low deadweight losses, they have high administrative burdens.
C)  lump-sum taxes are often viewed as unfair because they take the same amount of money from both poor and rich.
D)  lump-sum taxes are very inefficient.E) B) and D)
F) B) and C)

Question 18

The largest category of federal spending is national defense.

Accepted Answer

A) True 
 B)False

Question 19

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Accepted Answer

A) True 
 B)False

Question 20

Table 12-19 
-Refer to Table 12-19. The tax system is

Accepted Answer

A)  progressive.
B)  regressive.
C)  proportional.
D)  lump sum.E) A) and B)
F) B) and C)

Exam 12: The Design of the Tax System

Correct Answer
verified

Taxes create deadweight loss when they

Correct Answer
verified

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Correct Answer
verified

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is

Correct Answer
verified

What are the characteristic(s) of an efficient tax system?

Correct Answer
verified
One tax system is more efficie...
View Answer

Lump-sum taxes are rarely used in the real world because

Correct Answer
verified

The largest category of federal spending is national defense.

Correct Answer
verified

The deadweight loss of a tax is

Correct Answer
verified

Table 12-19 -Refer to Table 12-19. The tax system is

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Table 12-19 -Refer to Table 12-19. The tax system is

Correct Answer
verified

The state government requires all persons to pay 5% of their incomes in income tax.This is an example of:

Correct Answer
verified

Table 12-13 The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. -Refer to Table 12-13. In this economy Tax A exhibits

Correct Answer
verified

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?

Correct Answer
verified

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Correct Answer
verified

In order to construct a more complete picture of the economic burden of government across income classes, economists usually

Correct Answer
verified

The ability-to-pay principle claims that a person should pay taxes according to

Correct Answer
verified

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Correct Answer
verified

Vertical equity in taxation refers to the idea that people

Correct Answer
verified

Exam 12: The Design of the Tax System

Correct AnswerverifiedShow Answer

Taxes create deadweight loss when they

Correct AnswerverifiedShow Answer

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Correct AnswerverifiedShow Answer

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is

Correct AnswerverifiedShow Answer

What are the characteristic(s) of an efficient tax system?

Correct AnswerverifiedOne tax system is more efficie...View AnswerShow Answer

Lump-sum taxes are rarely used in the real world because

Correct AnswerverifiedShow Answer

The largest category of federal spending is national defense.

Correct AnswerverifiedShow Answer

The deadweight loss of a tax is

Correct AnswerverifiedShow Answer

Table 12-19 -Refer to Table 12-19. The tax system is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 12-19 -Refer to Table 12-19. The tax system is

Correct AnswerverifiedShow Answer

The state government requires all persons to pay 5% of their incomes in income tax.This is an example of:

Correct AnswerverifiedShow Answer

Table 12-13 The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. -Refer to Table 12-13. In this economy Tax A exhibits

Correct AnswerverifiedShow Answer

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?

Correct AnswerverifiedShow Answer

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Correct AnswerverifiedShow Answer

In order to construct a more complete picture of the economic burden of government across income classes, economists usually

Correct AnswerverifiedShow Answer

The ability-to-pay principle claims that a person should pay taxes according to

Correct AnswerverifiedShow Answer

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Correct AnswerverifiedShow Answer

Vertical equity in taxation refers to the idea that people

Correct AnswerverifiedShow Answer

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One tax system is more efficie...
View Answer

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