Chapter 7 - Taxes

Question 1

Incidence of a tax

Answer 1

Who really pays it

Question 2

What happens when price elasticities are low

Answer 2

The tax increase won’t reduce the quantity of the good sold very much so tax revenue will rise

Question 3

If the price elasticities of tax are high enough

Answer 3

Tax reduces the quantity sold so much that the tax revenue falls

Question 4

What is an administrative cost of tax

Answer 4

The resources used for its collection, for the method of payment, and for any attempts to evade the tax

Question 5

Benefits principle

Answer 5

Those who benefit from public spending should bear the burden of the tax that pays for that spending

Question 6

Ability to pay principle

Answer 6

Those with greater ability to pay a tax should pay more

Question 7

Trade-off between equity and efficiency

Answer 7

The system can be made more efficient by making it less fair, and vice versa

Question 8

Progressive tax

Answer 8

Takes a larger share of the income of high income taxpayers than that of low-income taxpayers

Question 9

Regressive tax

Answer 9

Takes a smaller share of the income of high-income taxpayers than that of low-income taxpayers

Question 10

Marginal tax rate

Answer 10

Percentage of an increase in income that is taxed away