Economics Module 8

Question 1

Adam Smith opposed government taxation and spending.

Answer 1

False

Question 2

Compare the five countries represented in Figure 8.4. Which of the five countries allocated the largest percentage of its budget toward health and education expenditures?

Answer 2

United States of America

Question 3

Compare the five countries represented in Figure 8.4. Which of the five countries allocated the largest percentage of its budget to general public services?

Answer 3

El Salvador

Question 4

In Figure 8.5, of the items listed below, on average the single largest expenditure item for state and local governments across the U.S. is _________.

Answer 4

education

Question 5

According to Figure 8.7, the largest single source of state and local government tax revenue in the U.S. is _______.

Answer 5

the property tax

Question 6

According to Figure 8.6, the largest single source of federal government tax revenue in the U.S. is _____________.

Answer 6

taxes on income, profits, and capital gains

Question 7

Compare the five countries represented in Figure 8.6. Which of the five countries received the largest percentage of its tax revenue from taxes on goods and services (sales taxes)?

Answer 7

El Salvador

Question 8

Compare the five countries represented in Figure 8.6. Which of the five countries receives the largest percentage of its tax revenue from taxes on income, corporate profits, and capital gains?

Answer 8

United States of America

Question 9

According to Figures 8.8 and 8.9, what is the largest source of personal income for residents of the U.S.?

Answer 9

Wages and salaries

Question 10

In 2020, a person in the U.S. who earns $25,000 pays a marginal tax rate of ______________% into the Social Security Program, while a person who earns $140,000 pays a marginal tax rate of ______________% into the Social Security Program.

Answer 10

6.2, 0

Question 11

Sales taxes are which of the following?

Answer 11

An important source of revenue for state and local governments but not very important for the federal government in the U.S.

Question 12

In the U.S. in 2020, an individual who earns $225,000 a year (after standard deductions and exemptions) faces a marginal tax rate of ______________.

Answer 12

35%

Question 13

In the U.S. in 2020, an individual who earns $225,000 a year (after standard deductions and exemptions) faces an average tax rate of ______________.

Answer 13

24%

Question 14

The market equilibrium quantity without the $4 excise tax is ______________ units. The market equilibrium quantity with the $4 excise tax is ______________ units. The change in equilibrium quantity due to the $4 excise tax is ______________ units.

Answer 14

60, 50, -10

Question 15

The equilibrium price consumers pay for the product without the $4 excise tax is ______________. The equilibrium price consumers pay with the $4 excise tax is ______________. The change in equilibrium price due to the $4 excise tax is ______________.

Answer 15

$12, $14, $2

Question 16

The market equilibrium quantity without the 40% sales tax is ______________ units. The market equilibrium quantity with the 40% sales tax is ______________ units. The change in equilibrium quantity due to the 40% sales tax is ______________ units.

Answer 16

60, 50, -10

Question 17

The equilibrium price consumers pay for the product without the 40% sales tax is ______________. The equilibrium price consumers pay with the 40% excise tax is ______________. The change in equilibrium price due to the 40% sales tax is ______________.

Answer 17

$12, $14, $2

Question 18

Two facets of taxes that economists often use to compare taxes are _________.

Answer 18

efficiency and fairness

Question 19

What happens to the total amount of consumer surplus in a market if the cost of production rises? The total amount of consumer surplus:

Answer 19

decreases

Question 20

What happens to the total amount of producer surplus in a market if the demand for the product increases? The total amount of producer surplus:

Answer 20

increases

Question 21

Compare the effects of a given tax on goods with elastic demands and inelastic demands in terms of amount of revenues raised from the taxes. With an elastic demand, ______ revenue will be raised than with an inelastic demand.

Answer 21

less

Question 22

With an elastic demand, there will be a ____________ in allocative efficiency then there will be with an inelastic demand.

Answer 22

greater decrease

Question 23

As the elasticity of demand increases, all other things being equal, the impact of a tax on the change in the
equilibrium quantity does which of the following?

Answer 23

Gets larger

Question 24

Economists have estimated the elasticity of demand for the following (fairly) common goods:
If the same excise tax were imposed on the sale of each item, which market would experience the largest deadweight loss?

Answer 24

Fresh tomatoes

Question 25

Economists have estimated the elasticity of demand for the following (fairly) common goods:
If the same excise tax were imposed on the sale of each item, which market would experience the smallest deadweight loss?

Answer 25

Toothpicks

Question 26

In which of the following situations would the idea of vertical equity be violated?

Answer 26

Marcus earns $50,000 in income and $20,000 worth of benefits each year. He pays $15,000 in taxes each year. Claudia earns $60,000 running her own business. She receives no additional non-monetary benefits. She pays $18,000 in taxes each year.

Question 27

A criticism of the current Social Security program (in the U.S.) that focuses on its equity implications is that it is which of the following?

Answer 27

Is funded by a regressive tax

Question 28

Which of the following taxes is regressive?

Answer 28

A tax of 25% on the first $100,000 of income and of 20% on any additional income

Question 29

Which of the following taxes is proportional?

Answer 29

An equal percentage tax on all consumption and saving.

Question 30

Flat tax proposals generally fail to be truly proportional because which of the following is true?

Answer 30

They offer exemptions or deductions which create increasing average tax rates

Question 31

Which of the following taxes is progressive?

Answer 31

A tax of 20% on the first $100,000 of income and 30% on any additional income

Question 32

Which of the following would increase the efficiency loss of a progressive income tax?

Answer 32

Labor supply gets more elastic as income rises

Question 33

Using Table 8.3 from the text demonstrating the impact of a $4 excise tax, what is the original equilibrium price and equilibrium quantity in this market before the tax is imposed?

Answer 33

Equilibrium price of $12 at an equilibrium quantity of 60 units.

Question 34

Using Table 8.3 from the text demonstrating the impact of a $4 excise tax, what is the equilibrium price and equilibrium quantity in this market after the tax is imposed?

Answer 34

Equilibrium price of $14 at an equilibrium quantity of 50 units.

Question 35

Using Table 8.3 from the text demonstrating the impact of a $4 excise tax, was this tax efficient?

Answer 35

Yes.

Question 36

Using the edited figure from the text, on whom is the tax imposed—buyers or sellers?

Answer 36

Sellers

Question 37

Using the edited figure from the text, on whom is the incidence (the burden) of the tax greater—buyers or sellers?

Answer 37

Buyers

Question 38

Using the edited figure from the text, on whom is the tax imposed—buyers or sellers?

Answer 38

Sellers

Question 39

Using the edited figure from the text, on whom is the incidence (the burden) of the tax greater—buyers or sellers?

Answer 39

Sellers

Question 40

When will the tax incidence (the burden) of the tax be greater for buyers? Select all that apply.

Answer 40

a
When demand is more elastic than supply
c
When demand is more inelastic than supply

Question 41

A property tax is most likely to do which of the following?

Answer 41

Encourage homeowners to consume less than the allocatively efficient amount of housing.

Question 42

A highway paid with entry fees (tolls) may be considered ______ fair based on the benefit principle but ______ equitable based on the ability to pay principle compared to an income tax used for the same purpose.

Answer 42

more; less

Question 43

To pay for a public good that not everyone uses, the most equitable tax for most people is likely one that is based on _____________.

Answer 43

the benefit principle

Question 44

A progressive income tax is likely to do which of the following?

Answer 44

Increase the percentage of income taxed as income rises

Question 45

A tax on a good and a tax on income will result in which of the following effects on allocative efficiency? ______________ of the good will be produced for allocative efficiency. ______________ labor will be provided in the market.

Answer 45

not enough; not enough

Question 46

Most observers would claim that a regressive income tax will ________ equity.

Answer 46

decrease

Question 47

A sales tax is normally viewed as a __________.

Answer 47

regressive tax

Question 48

Which of the following taxes is most likely to be regressive?

Answer 48

Sales tax on food

Question 49

A flat tax that exempts the first $20,000 of income and taxes all income above $20,000 at a 15% rate is _________.

Answer 49

progressive

Question 50

In general, why do governments raise tax revenue? Select all that apply.

Answer 50

a
To provide public goods
b
To fund government operations
c
To transfer wealth from some individuals to other individuals

Question 51

One difference between state spending and local government spending is which of the following?

Answer 51

According to the figure below, which of the following countries receives the largest portion of its tax revenue from taxes on income, profits, and capital gains?

Question 52

According to the figure below, which of the following countries receives the largest portion of its tax revenue from taxes on income, profits, and capital gains?

Answer 52

Australia

Question 53

Which of the following countries receives the largest portion of its tax revenue from taxes on the sales of goods and services?

Answer 53

Israel

Question 54

Which of the following countries receives the largest portion of its tax revenue from taxes on international trade?

Answer 54

Bangladesh

Question 55

According to the figure above, which of the following countries spent the largest percent of its budget on health and education?

Answer 55

Turkey

Question 56

According to the figure below, which of the following countries spent the largest percent of its budget on general public services?

Answer 56

Russian Federation

Question 57

The income of a person who owns a small unincorporated business is ________.

Answer 57

proprietor’s income

Question 58

Income of a corporation after expenses is ________.

Answer 58

corporate profits

Question 59

In the U.S. in 2018, an individual who earns $25,000 a year (after standard deductions and exemptions) faces a marginal tax rate of ______________.

Answer 59

12%

Question 60

In the U.S. in 2018, an individual who earns $25,000 a year (after standard deductions and exemptions) faces an average tax rate of ______________.

Answer 60

11%

Question 61

A person in the U.S. who earns $75,000 pays a marginal tax rate of ______________% into the Social Security Program while a person who earns $200,000 pays a marginal tax rate of ______________% into the Social Security Program.

Answer 61

6.2; 0

Question 62

A value-added tax is most like __________.

Answer 62

a sales tax

Question 63

The market equilibrium quantity without the $1.50 excise tax is ______________ units. The market equilibrium quantity with the $1.50 excise tax is ______________ units. The change in equilibrium quantity due to the $1.50 excise tax is ______________ units.

Answer 63

130; 110; -20

Question 64

The equilibrium price consumers pay for the product without the $1.50 excise tax is ______________. The equilibrium price consumers pay with the $1.50 excise tax is ______________. The change in equilibrium price due to the $1.50 excise tax is ______________.

Answer 64

$3.50; $4.50; $1.00

Question 65

The market equilibrium quantity without the 14% sales tax is ______________ units. The market equilibrium quantity with the 14% sales tax is ______________ units. The change in equilibrium quantity due to the 14% sales tax is ______________ units.

Answer 65

130; 120; -10

Question 66

The equilibrium price consumers pay for the product without the 14% sales tax is ______________. The equilibrium price consumers pay with the 14% per sales tax is ______________. The change in equilibrium price due to the 14% sales tax is ______________.

Answer 66

$3.50; $4.00; +$0.50

Question 67

As the elasticity of supply decreases, all other things being equal, the impact of a tax on equilibrium quantity does what?

Answer 67

Gets smaller

Question 68

Economists have estimated the elasticity of demand for the following (fairly) common goods:
If the same excise tax were imposed on the sale of each item, which market would experience the largest dead weight loss?

Answer 68

Fresh green peas

Question 69

Economists have estimated the elasticity of demand for the following (fairly) common goods:
If the same excise tax were imposed on the sale of each item, which market would experience the smallest dead weight loss?

Answer 69

Salt

Question 70

In which of the following situations would the idea of horizontal equity be violated?

Answer 70

Omar earns $30,000 per year and gets free health care valued at $10,000 per year. He pays $4,500 per year in taxes. Kerry earns $40,000 per year and pays $6,000 in taxes.

Question 71

Which of the following taxes is regressive?

Answer 71

A tax on generic grocery items

Question 72

Which of the following taxes is proportional?

Answer 72

A tax on all forms of income of 20%

Question 73

Which of the following taxes is progressive?

Answer 73

A tax of 50% on inheritances of more than $4 million only

Question 74

An income tax that taxes all income at the same rate is often considered to be more fair than a sales tax that taxes all sales of goods and services at the same rate because which of the following is true?

Answer 74

People who earn more income tend to consume with a smaller proportion and save with a larger proportion of their income.

Question 75

Consider a tax on producers. Under which of the following circumstances would the tax cause the least effect on economic efficiency?

Answer 75

If the supply of the product is inelastic.

Question 76

Consider a tax paid by consumers. Under which of the following circumstances would the tax cause the least effect on economic efficiency?

Answer 76

If the demand for the product is inelastic.

Question 77

A tax on producers would cause the market price to _______ and the market quantity to _______.

Answer 77

increase; decrease

Question 78

A tax on consumers would case the market price to _______ and the market quantity to _______.

Answer 78

decrease; decrease

Question 79

Assume that the municipality decides to place a tax on individual incomes. Suppose that the tax is a fixed sum for everyone regardless of income. Explain how you might describe the tax. Select all that apply.

Answer 79

a
Regressive.
c
Would tax a larger percentage of smaller incomes.

Question 80

Now assume that the municipality decides to tax the same percentage of income for everyone regardless of income. Describe the tax in terms of the opportunity costs for individuals.

Answer 80

Individuals with a lower income will give up higher marginal utilities than those with higher incomes.

Question 81

The goal of a local government is to raise the most income in order to provide the best possible education for residents. Several different types of taxes are being considered. In order to raise the most funds for a given tax level, the taxes should be placed on goods, services, or activities:

Answer 81

that have the most inelastic demands.

Question 82

If the goal of a local government is to have the least effect on spending patters of taxpayers, the taxes should be placed on goods, services, or activities:

Answer 82

that have the most inelastic demands.

Question 83

The largest single source of state and local government tax revenue in the U.S. is:

Answer 83

The property tax.

Question 84

The largest single source of federal government tax revenue in the U.S. is:

Answer 84

Taxes on income, profits, and capital gains.

Question 85

Economists have estimated the elasticity of demand for the following (fairly) common goods. If the same excise tax were imposed on the sale of each item, which market would experience the largest deadweight loss compared to the tax revenue generated?

Answer 85

Fresh tomatoes

Question 86

Economists have estimated the elasticity of demand for the following (fairly) common goods. If the same excise tax were imposed on the sale of each item, which market would experience the smallest deadweight loss?

Answer 86

Toothpicks

Question 87

Which of the following taxes is regressive?

Answer 87

A tax of 25% on the first $100,000 of income and of 20% on any additional income.

Question 88

Which of the following taxes is progressive?

Answer 88

A tax of 20% on the first $100,000 of income and 30% on any additional income.