Chapter 9 & 12 Microeconomics

Question 1

Vertical Equity

Answer 1

Rich people should pay more taxes

Question 2

World Price

Answer 2

Price of goods in the world market

Question 3

Horizontal Equity

Answer 3

Tax payers with similar income levels should pay the same amount of tax

Question 4

Tarif

Answer 4

Tax on a good produced abroad and then sold domestically

Question 5

What are the 4 benefits of trade

Answer 5

More goods to choose from
More Competition
More Ideas
Cost is lowered through economics of scale

Question 6

What is an example of a Tarif?

Answer 6

If Toyota cars are Japanese made cars that are sold in the US, then the US taxes them

Question 7

Economics of Scale

Answer 7

Cost is lowered when goods are produced in large quantities

Question 8

Ability to Pay Principle

Answer 8

Taxing people based on them being rich or poor

Question 9

Progressive Tax

Answer 9

High income tax payers, pay a larger amount of their income

Question 10

Marginal Tax Rate

Answer 10

the amount taxes increase from an additional dollar of income

Question 11

What are the 2 largest sources of tax revenue for the United States?

Answer 11

Individual Income Tax

Payroll Tax

Question 12

Domestic Price

Answer 12

the price of a good that is sold and produced in the same country

Question 13

Average Tax Rate Formula

Answer 13

Total Tax
———– x 100
Total Income

Question 14

Which tax system best describes the U.S. federal tax system?

Answer 14

Progressive Tax

Question 15

Lump-some Tax

Answer 15

Tax that is the same for anyone

Question 16

Proportional Tax

Answer 16

All tax payers pay the same fraction of income

Question 17

What is an example of Proportional Tax?

Answer 17

If the tax rate is 40% everyone gets taxed at the same rate

• income = 100
• tax paid $40
• then income = 1000
• tax = $400

Question 18

Benefit Principle

Answer 18

The idea that people should pay taxes based on the benefits they receive

Question 19

What is an example of a benefits principle?

Answer 19

Money gotten from gasoline tax should be used to fix roads

People that buy gasoline are the people who use roads

Question 20

Regressive Tax

Answer 20

High income tax payers pay smaller fraction of income then lower income tax payers