Question 1

Maurice 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. Maurice earns $60,000 per year in salary and another $10,000 per year in non-labor income. What is his average tax rate?

Accepted Answer

A)  17.19 percent
B)  46.69 percent
C)  48.87 percent
D)  56.01 percentE) A) and C)
F) All of the above

Question 2

Table 12-4 
-Refer to Table 12-4. What is the marginal tax rate for a person who makes $35,000?

Accepted Answer

A)  25%
B)  30%
C)  40%
D)  60%E) B) and D)
F) B) and C)

Question 3

Table 12-24 
-Refer to Table 12-24. Would the tax system be justified due to the benefits principle?

Accepted Answer

Based only on the information ...

Question 4

Scenario 12-1
Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15.
-Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. Because total consumer surplus has

Accepted Answer

A)  fallen by more than the tax revenue, the tax has a deadweight loss.
B)  fallen by less than the tax revenue, the tax has no deadweight loss.
C)  fallen by exactly the amount of the tax revenue, the tax has no deadweight loss.
D)  increased by less than the tax revenue, the tax has a deadweight loss.E) None of the above
F) B) and D)

Question 5

In 2009, the lowest quintile of income earners paid about

Accepted Answer

A)  1 percent of income as taxes and paid less than 1 percent of all taxes.
B)  5 percent of income as taxes and paid less than 1 percent of all taxes.
C)  1 percent of income as taxes and paid about 5 percent of all taxes.
D)  5 percent of income as taxes and paid about 5 percent of all taxes.E) B) and D)
F) B) and C)

Question 6

Under a progressive tax system, the marginal tax rate could be equal to the average tax rate only when a taxpayer

Accepted Answer

A)  has a very high income.
B)  has a very low income.
C)  is self-employed.
D)  invests in a retirement plan.E) B) and C)
F) C) and D)

Question 7

Table 12-12 
-Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate for Charles would be

Accepted Answer

A)  0 percent.
B)  5 percent.
C)  6.7 percent.
D)  10 percent.E) C) and D)
F) A) and B)

Question 8

Scenario 12-3
Suppose Roger and Regina receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $8 for it. Roger would be willing to pay $11 for his first slice, $9 for his second slice, and $5 for his third slice. The current market price is $5 per slice.
-Refer to Scenario 12-3. Assume that the government places a $2 tax on each slice of cheesecake and that the new equilibrium price is $7. What is the deadweight loss of the tax?

Accepted Answer

A)  zero
B)  $3
C)  $6
D)  $8E) A) and D)
F) All of the above

Question 9

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

Accepted Answer

A)  the benefits principle.
B)  the ability-to-pay principle.
C)  vertical equity.
D)  horizontal equity.E) C) and D)
F) B) and D)

Question 10

From the time of Benjamin Franklin to the present, the percentage of the average American's income that goes to pay taxes has

Accepted Answer

A)  decreased from about 20 percent to about 10 percent.
B)  remained constant at about 10 percent.
C)  has risen from less than 2 percent to about 33.3 percent.
D)  has risen from less than 5 percent to about 25 percent.E) B) and D)
F) A) and D)

Question 11

In the 1980s, President Ronald Reagan argued that high tax rates distorted economic incentives to work and save. In the 1990s, President Bill Clinton argued that the rich were not paying their fair share of taxes. Which of the following statements best summarizes the economic theories behind the differing philosophies?

Accepted Answer

A)  President Reagan was concerned about vertical equity, whereas President Clinton was concerned about horizontal equity.
B)  President Reagan was concerned about average tax rates, whereas President Clinton was concerned about horizontal equity.
C)  President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity.
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 12

Table 12-17
The following table shows the marginal tax rates for unmarried individuals for two years. 
-Refer to Table 12-17. Suppose one goal of the tax system was to achieve vertical equity. While people may disagree about what is "equitable," based on the marginal tax rates given for the two years, which of the following statements is true?

Accepted Answer

A)  Vertical equity is possible in both years.
B)  Vertical equity is possible in 2009 but not in 2010.
C)  Vertical equity is not possible in 2009 but is possible in 2010.
D)  Vertical equity is not possible in either year.E) None of the above
F) A) and B)

Question 13

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?

Accepted Answer

A)  Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent.
B)  Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.
C)  Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent.
D)  Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent.E) A) and B)
F) B) and C)

Question 14

Suppose Tyler values a basketball at $20. Jacqui values a basketball at $25. The pre-tax price of a basketball $10. The government imposes a tax of $5 on each basketball, and the price rises to $15. The deadweight loss from the tax is

Accepted Answer

A)  $25.
B)  $15.
C)  $10.
D)  $0.E) B) and C)
F) A) and B)

Question 15

Individual Retirement Accounts and 401(k)  plans make the current U.S. tax system

Accepted Answer

A)  less like European tax systems than it otherwise would be.
B)  more like a payroll tax than it otherwise would be.
C)  more like an income tax than it otherwise would be.
D)  more like a consumption tax than it otherwise would be.E) A) and C)
F) All of the above

Question 16

Table 12-22 
-Refer to Table 12-22. A progressive tax is illustrated by tax

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) C) and D)
F) A) and D)

Question 17

Deadweight losses occur in markets in which

Accepted Answer

A)  firms decide to downsize.
B)  the government imposes a tax.
C)  profits fall because of low consumer demand.
D)  equilibrium prices fall.E) A) and B)
F) B) and D)

Question 18

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

Accepted Answer

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) A) and B)
F) A) and D)

Question 19

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of

Accepted Answer

A)  the horizontal equity principle.
B)  the benefits principle.
C)  a regressive tax argument.
D)  the ability-to-pay principle.E) A) and B)
F) A) and C)

Question 20

An advantage of a consumption tax over the present tax system is that a consumption tax

Accepted Answer

A)  raises more revenues.
B)  would save the government millions in administrative costs.
C)  places more of the tax burden on the wealthy.
D)  does not discourage saving.E) A) and B)
F) A) and C)

Exam 12: The Design of the Tax System

Correct Answer
verified

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of

Correct Answer
verified

Under a progressive tax system, the marginal tax rate could be equal to the average tax rate only when a taxpayer

Correct Answer
verified

An advantage of a consumption tax over the present tax system is that a consumption tax

Correct Answer
verified

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $35,000?

Correct Answer
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Table 12-12 -Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate for Charles would be

Correct Answer
verified

Table 12-24 -Refer to Table 12-24. Would the tax system be justified due to the benefits principle?

Correct Answer
verified
Based only on the information ...
View Answer

From the time of Benjamin Franklin to the present, the percentage of the average American's income that goes to pay taxes has

Correct Answer
verified

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

Correct Answer
verified

Deadweight losses occur in markets in which

Correct Answer
verified

Individual Retirement Accounts and 401(k) plans make the current U.S. tax system

Correct Answer
verified

Correct Answer
verified

Suppose Tyler values a basketball at $20. Jacqui values a basketball at $25. The pre-tax price of a basketball $10. The government imposes a tax of $5 on each basketball, and the price rises to $15. The deadweight loss from the tax is

Correct Answer
verified

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

In 2009, the lowest quintile of income earners paid about

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Table 12-22 -Refer to Table 12-22. A progressive tax is illustrated by tax

Correct Answer
verified

Exam 12: The Design of the Tax System

Correct AnswerverifiedShow Answer

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of

Correct AnswerverifiedShow Answer

Under a progressive tax system, the marginal tax rate could be equal to the average tax rate only when a taxpayer

Correct AnswerverifiedShow Answer

An advantage of a consumption tax over the present tax system is that a consumption tax

Correct AnswerverifiedShow Answer

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $35,000?

Correct AnswerverifiedShow Answer

Table 12-12 -Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate for Charles would be

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Table 12-24 -Refer to Table 12-24. Would the tax system be justified due to the benefits principle?

Correct AnswerverifiedBased only on the information ...View AnswerShow Answer

From the time of Benjamin Franklin to the present, the percentage of the average American's income that goes to pay taxes has

Correct AnswerverifiedShow Answer

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

Correct AnswerverifiedShow Answer

Deadweight losses occur in markets in which

Correct AnswerverifiedShow Answer

Individual Retirement Accounts and 401(k) plans make the current U.S. tax system

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose Tyler values a basketball at $20. Jacqui values a basketball at $25. The pre-tax price of a basketball $10. The government imposes a tax of $5 on each basketball, and the price rises to $15. The deadweight loss from the tax is

Correct AnswerverifiedShow Answer

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In 2009, the lowest quintile of income earners paid about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 12-22 -Refer to Table 12-22. A progressive tax is illustrated by tax

Correct AnswerverifiedShow Answer

Correct Answer
verified

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verified
Based only on the information ...
View Answer

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