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71
Copyright © 2011 Pearson Education, Inc.
16) Which of the following taxes best illustrate the ability-to-pay principle of tax fairness?
A) Tuition at public universities is lower for in-state residents than for out-of-state residents.
B) The library is funded through flat $10 tax levied on all homeowners.
C) A property tax that is proportional to the value of a home is used to fund K-12 education.
D) Free cholesterol check clinics are funded through a $0.20 tax on all prescriptions.
E) A sales tax on food pays for local police and fire protection.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: KG
AACSB: Reflective thinking
17) When it comes to taxes, horizontal equity means that
A) people with lower incomes bear a smaller tax burden.
B) people with the same incomes pay the same amount of taxes.
C) progressive taxes must be imposed.
D) regressive taxes must be imposed.
E) only proportional taxes are fair.
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: CD
AACSB: Reflective thinking
18) The assertion that people with the same ability to pay taxes should pay the same amount in
taxes best represents the idea of
A) horizontal equity.
B) vertical equity.
C) the benefits principle of tax fairness.
D) fairness principle of taxation.
E) benefits paid principle of taxation.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: KG
AACSB: Reflective thinking
72
Copyright © 2011 Pearson Education, Inc.
19) If taxes are collected on the basis of ability-to-pay and there are two taxpayers with the same
income who also are identical in all other respects, which of the following is correct?
A) Vertical equity is impossible between these two taxpayers.
B) Vertical equity exists.
C) Horizontal equity exists.
D) The tax must be proportional.
E) The fair-incidence principle is potentially being violated.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: TS
AACSB: Reflective thinking
20) Suppose that Anthony and Melissa both earn $30,000 and are otherwise the same. If they
both pay 10 percent of their income as taxes, then
A) the income tax is regressive.
B) the benefits principle of fairness has been achieved.
C) horizontal equity has been achieved.
D) proportional equity has been achieved.
E) vertical equity has been achieved.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: SA
AACSB: Reflective thinking
21) Vertical equity is the idea that
A) taxpayers with a greater ability to pay should bear a greater share of the taxes.
B) people should pay taxes equal to the benefits they receive from public benefits.
C) as income rises, taxes should be efficient, not equitable.
D) the marriage tax is equitable.
E) taxes must be fairest to people with the largest incomes.
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: SB
AACSB: Reflective thinking
73
Copyright © 2011 Pearson Education, Inc.
22) Progressive taxes can be justified as fair based on which of the following?
A) horizontal equity
B) vertical equity
C) benefits received
D) index of fairness principle
E) None of the above answers is correct.
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: TS
AACSB: Ethical reasoning
23) The assertion that Bill Gates and Paris Hilton should pay more taxes than Average Joe best
represents the idea of
A) horizontal equity.
B) vertical equity.
C) the benefits principle of tax fairness.
D) fairness principle of taxation.
E) benefits paid principle of taxation.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: KG
AACSB: Reflective thinking
24) The marriage tax problem in the United States is a
A) vertical equity problem because married people pay less than similar single people.
B) horizontal equity problem because married people pay more than similar single people.
C) benefits principle problem because who benefit more pay less.
D) vertical equity problem because married people pay more than similar single people.
E) horizontal equity problem because married people pay less than similar single people.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: WM
AACSB: Reflective thinking
74
Copyright © 2011 Pearson Education, Inc.
25) The marriage tax problem in the U.S. tax code is a problem involving which of the
following?
A) benefits received principle
B) the ability-to-pay principle
C) a conflict between horizontal and vertical equity
D) vertical equity
E) incidence of fairness principle
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: TS
AACSB: Reflective thinking
26) Trying to achieve vertical equity by using a progressive income tax structure can create
problems with which of the following?
A) horizontal equity
B) vertical equity
C) benefits received
D) tax incidence
E) regressive equality
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: TS
AACSB: Reflective thinking
27) Which of the following taxes best illustrates the benefits principle of taxation?
A) sales tax on clothing used to fund food stamps
B) state income tax used to fund state universities
C) medicare tax imposed on all workers used to fund medical care for the elderly
D) gasoline tax used to fund road repairs
E) federal income tax used to fund NASA spending
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
75
Copyright © 2011 Pearson Education, Inc.
28) The proposition that people should pay taxes according to how easily they can bear the
burden is known as the ________ principle.
A) regressive tax
B) benefits
C) ability-to-pay
D) fairness
E) incidence of fairness
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
29) The government once imposed a luxury tax on very expensive jewelry. This tax followed the
________ principle.
A) benefits
B) ability-to-pay
C) vertical equity
D) horizontal equity
E) fair-tax incidence
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
30) The proposition that taxpayers with the same ability to pay should pay the same taxes is
called
A) the benefits principle.
B) the ability-to-pay imperative.
C) vertical equity.
D) horizontal equity.
E) the fair-tax incidence principle.
Skill: Level 1: Definition
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
76
Copyright © 2011 Pearson Education, Inc.
31) Vertical equity implies that
i. tax rates should be equal for all tax payers.
ii. people with higher income should pay more in taxes.
iii. people with higher incomes should pay a lower average tax rate.
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
32) Joan's income is $60,000 and she pays $6,000 in taxes. Juan's income is $40,000 and he pays
$7,000 in taxes. This situation violates
A) the benefits principle.
B) the big tradeoff.
C) vertical equity.
D) horizontal equity.
E) the fair-tax incidence principle.
Skill: Level 3: Using models
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
33) Because the U.S. income tax is a progressive tax, taxing married couples as two single
persons can violate
A) the benefits principle.
B) the ability-to-pay imperative.
C) vertical equity.
D) horizontal equity.
E) the government's need for more revenue.
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
77
Copyright © 2011 Pearson Education, Inc.
34) Compared to taxes on labor income, taxes on capital income generate ________ deadweight
loss and are paid by people who generally have the ________ ability to pay.
A) a larger; most
B) a larger; least
C) a smaller; most
D) a smaller; least
E) no; least
Skill: Level 2: Using definitions
Section: Checkpoint 8.3
Author: STUDY GUIDE
AACSB: Reflective thinking
78
Copyright © 2011 Pearson Education, Inc.
8.4 Chapter Figures
The figure above shows the market for MP3 players, where S is the supply curve and D is the
demand curve before any tax. The government imposes a $10 per unit tax on buyers of MP3
players.
1) After the tax is imposed, the price (including the tax) paid by the buyer is ________ per MP3
player.
A) $105
B) $100
C) $95
D) $110
E) $90
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
79
Copyright © 2011 Pearson Education, Inc.
2) After the tax is imposed, the price received by the seller is ________ per MP3 player.
A) $105
B) $100
C) $95
D) $110
E) $90
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
3) The tax ________ the price paid by the buyer by ________ per MP3 player.
A) raises; $5
B) lowers; $5
C) raises; $10
D) lowers; $10
E) raises; $7.50
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
4) The tax ________ the price received by the seller by ________ per MP3 player.
A) raises; $5
B) lowers; $5
C) raises; $10
D) lowers; $10
E) lowers; $2.50
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
80
Copyright © 2011 Pearson Education, Inc.
5) After the tax is imposed, the government collects tax revenue of ________ a week.
A) $20,000
B) $10,000
C) $50,000
D) $60,000
E) $40,000
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
6) Based on the figure above, the burden of the tax
A) is split equally between the buyer and the seller.
B) falls mostly on buyers.
C) falls mostly on sellers.
D) falls entirely on buyers.
E) falls entirely on sellers.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Author: CO
AACSB: Analytical reasoning
