Page 1
1.
Suppose the government decides to fight obesity in America by imposing an excise tax
based on the saturated fat content of food. The most likely effect of this tax would be to:
A)
lower the profits of ice cream suppliers.
B)
decrease revenue for the government.
C)
decrease black market activity.
D)
raise the profits of ice cream suppliers.
2.
Suppose the government imposes a $10 excise tax on the sale of sweaters by charging
suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the
supply curve is upward-sloping:
A)
the price of sweaters will increase by $10.
B)
consumers of sweaters will bear the entire burden of the tax.
C)
the price of sweaters will increase by less than $10.
D)
the price of sweaters will decrease by $10.
3.
An excise tax that the government collects from the producers of a good:
A)
shifts the supply curve upward.
B)
reduces revenue for the government.
C)
has an effect similar to that of a tax subsidy.
D)
shifts the supply curve downward.
4.
Recently the government considered adding an excise tax on CDs that can be used to
record music and CD players that can record discs. If this tax were enacted, the most
likely effect would be:
A)
that consumers would pay a higher price and producers would sell fewer of these
CDs and CD players than before the tax.
B)
no change in consumption or the prices paid by consumers of these CDs and CD
players.
C)
that consumers would pay a lower price and producers would receive a higher price
for these CDs and CD players than before the tax.
D)
an increase in economic activity due to the tax.
5.
If an excise tax is imposed on automobiles and collected from consumers:
A)
the demand curve will shift downward by the amount of the tax.
B)
the supply curve will shift upward by the amount of the tax.
C)
the equilibrium quantity supplied will increase relative to the pretax level.
D)
the equilibrium quantity demanded will increase relative to the pretax level.
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6.
The incidence of a tax:
A)
is a measure of the revenue the government receives from it.
B)
refers to who writes the check to the government.
C)
refers to how much of the tax is actually paid by consumers and producers.
D)
is a measure of the deadweight loss from the tax.
Use the following to answer questions 7-10:
7.
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie
and collect that tax from the producers. According to the table, consumers will pay
_____ per Twinkie and buy _____ Twinkies after the tax.
A)
$1.20; 8,000
B)
$1.30; 7,000
C)
$1.40; 6,000
D)
$1.50; 5,000
8.
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. Of the $0.30 tax per fried Twinkie, consumers actually pay _____, while
producers actually pay _____.
A)
$0.30; $0.00
B)
$0.15; $0.15
C)
$0.20; $0.10
D)
$0.00; $0.30
9.
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie
and collect that tax from the producers. After paying the tax, producers will receive
_____ per Twinkie, and they will sell _____ Twinkies after the tax.
A)
$1.10; 3,000
B)
$1.20; 5,000
C)
$1.30; 7,000
D)
$1.50; 5,000
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10.
(Table: The Market for Fried Twinkies) Look at the table The Market for Fried
Twinkies. As a result of the $0.30 tax per fried Twinkie, the government will receive
total tax revenue of:
A)
$500.
B)
$1,000.
C)
$1,500.
D)
The total is impossible to calculate.
Use the following to answer question 11:
Figure: An Excise Tax
11.
(Figure: An Excise Tax) Look at the figure An Excise Tax. If an excise tax equal to
$1.10 is imposed on this good, then the price paid by consumers will:
A)
rise by $1.10.
B)
rise by $1.33.
C)
not rise.
D)
rise by $0.50.
12.
The burden of a tax on a good is said to fall completely on the consumers if the:
A)
price paid by consumers for the good declines by the amount of the tax.
B)
price paid by consumers for the good increases by the amount of the tax.
C)
price paid by consumers does not change.
D)
wages received by workers who produce the good increase by the amount of the
tax.
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13.
The burden of a tax on a good is said to fall completely on the producers if the:
A)
price paid by consumers for the good declines by the amount of the tax.
B)
price paid by consumers for the good increases by the amount of the tax.
C)
price paid by consumers does not change.
D)
wages received by workers who produce the good increase by the amount of the
tax.
Use the following to answer questions 14-15:
Figure: The Market for Productivity Apps
14.
(Figure: The Market for Productivity Apps) Look at the figure The Market for
Productivity Apps. If the government imposes a tax of $1 in this market, consumers will
pay _____ more per app and purchase _____ fewer apps.
A)
$1; 5
B)
$1; 25
C)
$0.50; 5
D)
$0.50; 20
15.
(Figure: The Market for Productivity Apps) Look at the figure The Market for
Productivity Apps. If the government imposes a tax of $1 in this market, producers will
receive _____ less per app and sell _____ fewer apps.
A)
$1; 5
B)
$1; 25
C)
$0.50; 5
D)
$0.50; 20
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16.
If an excise tax is imposed on wine and collected from the consumers, the _____ curve
will shift _____ by the amount of the tax.
A)
demand; upward
B)
demand; downward
C)
supply; upward
D)
supply; downward
17.
If an excise tax is imposed on beer and collected from the producers, the _____ curve
will shift _____ by the amount of the tax.
A)
demand; upward
B)
demand; downward
C)
supply; upward
D)
supply; downward
18.
Assuming a normal upward-sloping supply curve and downward-sloping demand curve,
if the government imposes a $5 excise tax on leather shoes and collects the tax from the
suppliers, the price of leather shoes will:
A)
increase by $5.
B)
increase by more than $5.
C)
increase by less than $5.
D)
increase, but we cannot determine by how much.
19.
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes
increases by $2:
A)
the government will receive less tax revenue than anticipated.
B)
consumers are paying more of the tax than the producers.
C)
producers are paying more of the tax than are the consumers.
D)
the quantity of shoes sold will increase.
20.
If the government imposes a $5 excise tax on leather shoes and the price of leather shoes
does not change:
A)
the government will receive less tax revenue than anticipated.
B)
consumers are paying all of the tax.
C)
producers are paying all of the tax.
D)
consumers and producers are paying equal amounts of the tax.
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21.
State governments levy excise taxes on alcohol because:
A)
they want to subsidize alcohol production.
B)
they want to encourage individuals to produce their own alcohol.
C)
it discourages drinking alcohol while raising revenue for the government.
D)
it is politically popular with religious groups.
22.
Tax incidence refers to:
A)
who writes the check to the government.
B)
who really pays the tax.
C)
the deadweight loss from the tax.
D)
the total revenue that the government collects from the tax.
23.
An excise tax is levied on:
A)
each unit of a good or service that is sold.
B)
earnings.
C)
the ownership of real estate.
D)
the inheritance of assets.
24.
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a
$1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon.
The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.
A)
$0.25; $0.75
B)
$0.50; $0.50
C)
$0; $1.00
D)
$0.75; $0.25
25.
Which of the following is an excise tax?
A)
a tax of $0.41 per gallon of gas
B)
a tax of 12.4% of your wages
C)
a tax on the value of your property
D)
a one-time local per capita tax of $50
26.
An excise tax is levied on suppliers. The incidence of the tax:
A)
is typically on the consumer more than the producer.
B)
is typically on the producer more than the consumer.
C)
is typically split equally between the producer and the consumer.
D)
cannot be determined without more information.
Page 7
Use the following to answer question 27:
Figure: Market for Hotel Rooms
27.
(Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms.
Suppose with no tax the equilibrium price is $110 and the equilibrium quantity is 250. If
the local government levies a tax of $30 per night on each hotel room rented, the new
equilibrium price will equal _____ and the new equilibrium quantity will equal _____.
A)
$140; 100
B)
$130; 150
C)
$120; 200
D)
$110; 250
28.
Taxes on the purchase of specific items such as gasoline, cigarettes, or alcoholic
beverages are called:
A)
personal income taxes.
B)
excise taxes.
C)
property taxes.
D)
sales taxes.
29.
Determining who bears the burden of the tax is a question about:
A)
tax incidence.
B)
externality analysis.
C)
public interest theory.
D)
public choice theory.
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30.
Tax incidence analysis seeks to determine:
A)
who sends the tax payment to the government.
B)
who actually pays the tax.
C)
who ultimately gets the tax revenue.
D)
whether a tax is in the benefits-received category or the ability-to-pay category.
31.
Determining who actually pays the cost imposed by a tax is the study of:
A)
public interest theory.
B)
rational choice theory.
C)
tax incidence.
D)
budget analysis.
32.
The burden of a tax on a good falls at least partially on consumers if:
A)
the price paid by consumers for the good declines.
B)
the price paid by consumers for the good increases.
C)
the wages received by workers who produce the good decline.
D)
the wages received by workers who produce the good increase.
33.
Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity
of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will
pay more of the tax?
A)
Yacht builders will pay more.
B)
Yacht buyers will pay more.
C)
Yacht builders and buyers will pay equally.
D)
It’s impossible to tell without additional information.
34.
State governments levy excise taxes on cigarettes because:
A)
they want to subsidize tobacco farming.
B)
they want to discourage cigarette smuggling.
C)
it is an easy way to raise tax revenue while discouraging smoking.
D)
they want to minimize the tax burden on consumers.
35.
Suppose the government levies a $4 per month excise tax on cable TV. If the demand
for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively
(but not perfectly) elastic, then the price of cable TV will:
A)
increase by more than $4.
B)
increase by exactly $4.
C)
increase by less than $4.
D)
remain constant.
Page 9
36.
Suppose the government imposes a $4 per month excise tax on cable TV. If the demand
for cable TV is perfectly inelastic and the supply curve is elastic (but not perfectly
elastic), then the price of cable TV will:
A)
increase by more than $4.
B)
increase by exactly $4.
C)
increase by less than $4.
D)
remain constant.
37.
If the demand curve is downward-sloping and supply is perfectly elastic, then the
burden of an excise tax is:
A)
borne entirely by consumers.
B)
borne entirely by producers.
C)
shared by consumers and producers, with the burden falling mainly on consumers.
D)
shared by consumers and producers, with the burden falling mainly on producers.
38.
If demand is perfectly inelastic and the supply curve is upward-sloping, then the burden
of an excise tax is:
A)
borne entirely by consumers.
B)
borne entirely by producers.
C)
shared by consumers and producers, with the burden falling mainly on consumers.
D)
shared by consumers and producers, with the burden falling mainly on producers.
39.
As part of an antiobesity program, the government levies an excise tax on high-fat
foods. We expect consumers to pay almost all of this tax if demand is _____ and supply
is _____.
A)
inelastic; inelastic
B)
inelastic; elastic
C)
elastic; elastic
D)
elastic; inelastic
40.
Suppose the government imposes a $10 per month tax on cell phone service. If the
demand curve for cell phone service is perfectly inelastic and the supply curve is
upward-sloping, the monthly price for cell phone service will increase by:
A)
$5.
B)
less than $10.
C)
$10.
D)
$0.
Page 10
41.
Suppose the government imposes a $9 per month tax on cell phone service. If the
demand curve for cell phone service is perfectly elastic and the supply curve is
upward-sloping, the monthly price for cell phone service will:
A)
increase by $4.50.
B)
increase by more than $9.
C)
increase by $9.
D)
not change.
42.
The price elasticity of demand for a particular cancer drug is zero and the price elasticity
of supply is 0.50. If a $1 excise tax is levied on producers, how much of this tax will
eventually be paid by consumers?
A)
$0
B)
$1
C)
$0.50
D)
$1.50
43.
The demand for food is very inelastic compared to the supply of food, so if a tax is
imposed on the consumers of food, the tax incidence:
A)
is typically on consumers more than producers.
B)
is typically on producers more than consumers.
C)
is typically split equally between consumers and producers.
D)
cannot be determined without more information.
44.
Demand for Gala apples is relatively elastic compared to the supply of Gala apples, so if
a tax is imposed on the consumers of Gala apples, the tax incidence:
A)
is typically on consumers more than producers.
B)
is typically on producers more than consumers.
C)
is typically split equally between consumers and producers.
D)
cannot be determined without more information.
45.
Economic analysis shows that workers pay _____ of the FICA.
A)
exactly half
B)
very little
C)
most
D)
none
Page 11
46.
When workers earn income, they and their employer pay equal portions of FICA (the
Federal Insurance Contributions Act). Which of the following statements is TRUE?
A)
The worker and the employer each bear half of the burden (incidence) of the tax.
B)
The employer bears almost all of the burden of the tax.
C)
The worker bears almost all of the burden of the tax.
D)
It’s impossible to determine who bears the burden of the tax.
47.
By law, FICA (the Federal Insurance Contributions Act), a payroll tax, is collected
equally from employers and employees. In reality:
A)
the law works—the employers and the employees each bear half of the burden of
the tax.
B)
the employees bear almost all of the burden of the tax.
C)
the employers bear almost all of the burden of the tax.
D)
it’s impossible to determine who bears the burden of the tax.
Use the following to answer questions 48-49:
Figure: The Shrimp Market
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48.
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government
wants to limit shrimp sales to 500 pounds, it can impose a _____ excise tax on sellers,
and the total tax revenue generated will be _____.
A)
$5; $2,500
B)
$7.50; $7,500
C)
$10; $2,500
D)
The answer cannot be determined from the information provided.
49.
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government
wants to limit shrimp sales to 250 pounds, it can impose a _____ excise tax on sellers,
and the total tax revenue generated will be _____.
A)
$5; $2,500
B)
$7.50; $7,500
C)
$10; $2,500
D)
The answer cannot be determined from the information provided.
50.
A higher tax rate is more likely to increase tax revenue if the price elasticity of demand
is _____ and the price elasticity of supply is _____.
A)
high; high
B)
low; low
C)
low; high
D)
high; low
51.
The amount of tax levied per unit of good or service is called the tax:
A)
incidence.
B)
rate.
C)
revenue.
D)
surplus.
52.
A higher rate is most likely to decrease the amount of revenue that the government
collects from an excise tax if demand is _____ and supply is _____.
A)
elastic; elastic
B)
elastic; inelastic
C)
inelastic; elastic
D)
inelastic; inelastic
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53.
If demand and supply are both very inelastic, a decrease in the rate of an excise tax will
likely:
A)
decrease government revenue.
B)
increase government revenue.
C)
not affect government revenue.
D)
make demand and supply both elastic.
54.
If demand and supply are both very elastic, a decrease in the rate of an excise tax will
likely:
A)
decrease government revenue.
B)
increase government revenue.
C)
not affect government revenue.
D)
make demand and supply both inelastic.
55.
If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is
likely to decrease.
A)
3.3; 2.1
B)
3.3; 0.5
C)
0.2; 2.1
D)
0.2; 0.5
56.
If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is
likely to increase.
A)
3.3; 2.1
B)
3.3; 0.5
C)
0.2; 2.1
D)
0.2; 0.5
57.
If the United States removed all excise taxes on cigarettes, which of the following
would NOT occur?
A)
a decrease in producer surplus
B)
an increase in producer surplus
C)
an increase in consumer surplus
D)
an increase in total surplus
Page 14
58.
When the government imposes an excise tax in a market with a downward-sloping
demand curve and an upward-sloping supply curve:
A)
consumer surplus falls.
B)
producer surplus falls.
C)
a deadweight loss occurs.
D)
consumer surplus falls, producer surplus falls, and a deadweight loss occurs.
59.
If the government removed the excise tax on gasoline, assuming that neither demand nor
supply is perfectly inelastic, which of the following would NOT occur?
A)
an increase in consumer surplus
B)
an increase in producer surplus
C)
a decrease in producer surplus
D)
an increase in total surplus
60.
The deadweight loss from an excise tax comes about because:
A)
the number of transactions in the market is smaller than the no-tax equilibrium.
B)
some mutually beneficial transactions do not take place.
C)
a quota rent exists.
D)
the number of transactions in the market is reduced and some mutually beneficial
transactions do not take place.
61.
An excise tax causes inefficiency if the number of transactions in a market is reduced as
a result of the tax. Because the tax discourages mutually beneficial transactions, there is
a(n) _____ from a tax.
A)
quota rent
B)
deadweight loss
C)
increased consumer surplus
D)
increased producer surplus
62.
A tax leads to a(n) _____ in consumer surplus and a(n) _____ in producer surplus.
A)
increase; increase
B)
increase; decrease
C)
decrease; increase
D)
decrease; decrease
63.
The burden of a tax system comes from its:
A)
effect on elasticity.
B)
effect on marginal incentives.
C)
inequity.
D)
government revenue.
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64.
Assume the same upward supply curve for each of the following goods. Considering
demand only, a tax on _____ would result in the largest deadweight loss.
A)
gasoline
B)
medicine
C)
restaurant meals
D)
tobacco
65.
If the government decides to impose a $700 tax on U.S. citizens vacationing abroad,
then the deadweight loss from this tax will be:
A)
relatively small.
B)
relatively large.
C)
zero.
D)
absorbed by foreign governments.
66.
The number of seats in a football stadium is fixed at 70,000. The city decides to impose
a tax of $10 per ticket. In response, the team management raises the ticket price from
$30 to $40 and still sells all 70,000 tickets. The tax caused a change in the consumer
surplus of _____, a change in the producer surplus of _____, and a deadweight loss of
_____.
A)
–$10; $0; $10
B)
–$700,000; $0; $700,000
C)
–$10; $0; $0
D)
–$700,000; $0; $0
67.
Excise taxes that raise the most revenue and cause the least deadweight loss are likely to
be levied on goods for which demand is _____ and supply is _____.
A)
inelastic; elastic
B)
inelastic; inelastic
C)
elastic; inelastic
D)
elastic; elastic
68.
The governor wants to levy a $1 excise tax on some good—he doesn’t care which—but
he does want to minimize the deadweight loss. The deadweight loss will be least when
the demand curve is _____ and the supply curve is _____.
A)
elastic; elastic
B)
elastic; inelastic
C)
inelastic; elastic
D)
inelastic; inelastic
Page 16
69.
The 1990 “yacht tax” caused a large deadweight loss because demand for luxury yachts
made in the United States is:
A)
very elastic.
B)
very inelastic.
C)
perfectly inelastic, since rich people will pay whatever is necessary.
D)
very steeply sloped.
70.
If demand is downward-sloping and supply is upward-sloping, which of the following
statements about the effects of an excise tax is INCORRECT?
A)
The lower the elasticity of supply relative to the elasticity of demand, the lower the
burden of the tax borne by suppliers.
B)
An excise tax causes a deadweight loss because consumer and producer surpluses
are reduced by more than the revenue the government collects.
C)
An excise tax drives a wedge between the price paid by consumers and the price
received by producers.
D)
An excise tax is inefficient because it distorts incentives at the margin for both
consumers and producers.
71.
If the government wants to minimize the deadweight loss from taxes, it should tax
goods for which:
A)
the price elasticity of demand is high.
B)
the price elasticity of demand is low.
C)
the price elasticity of supply is high.
D)
the demand is high.
72.
If the government levies an excise tax in a market whose demand curve is perfectly
inelastic, the burden of the tax will fall completely on the _____, and the deadweight
loss will equal _____.
A)
consumers; zero
B)
producers; zero
C)
consumers; the tax revenue
D)
producers; the tax revenue
73.
If the government levies an excise tax in a market whose supply curve is perfectly
inelastic, the burden of the tax will fall completely on the _____, and the deadweight
loss will equal _____.
A)
consumers; zero
B)
producers; zero
C)
consumers; the tax revenue
D)
producers; the tax revenue
Page 17
74.
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall
on goods for which the supply is _____ and the demand is _____.
A)
elastic; elastic
B)
inelastic; inelastic
C)
elastic; inelastic
D)
inelastic; elastic
75.
If the main purpose of a tax is to decrease the amount of a harmful activity, such as
underage drinking, the government should impose it on harmful activities whose supply
is _____ and demand is _____.
A)
elastic; elastic
B)
inelastic; inelastic
C)
elastic; inelastic
D)
inelastic; elastic
76.
Given any downward-sloping demand curve for a good, the more price-elastic the
supply curve, the _____ equilibrium output will fall and the _____ will be the
deadweight loss when the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
77.
Given any downward-sloping demand curve for a good, the more inelastic the supply
curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss
when the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
78.
Given any upward-sloping supply curve for a good, the more elastic the demand curve,
the _____ equilibrium output will fall and the _____ will be the deadweight loss when
the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
Page 18
79.
Given any upward-sloping supply curve for a good, the more inelastic the demand
curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss
when the government imposes an excise tax.
A)
more; smaller
B)
more; larger
C)
less; smaller
D)
less; larger
80.
An analysis of the effect of excise taxes on markets allows us to conclude that:
A)
when the price elasticity of supply is equal to zero, an excise tax falls entirely on
the consumers.
B)
when the price elasticity of demand is lower than the price elasticity of supply, an
excise tax falls mainly on the producers.
C)
whether the tax is levied on consumers or producers, the quantity sold will be the
same.
D)
when the price elasticity of demand is higher than the price elasticity of supply, an
excise tax falls mainly on the consumers.
81.
The deadweight loss from an excise tax is largest if demand is _____ and supply is
_____.
A)
elastic; inelastic
B)
inelastic; elastic
C)
inelastic; inelastic
D)
elastic; elastic
82.
If the demand for good X is perfectly inelastic and a tax is levied on the producers of
each unit:
A)
consumers pay the entire tax, and deadweight loss will occur because the
equilibrium quantity of good X falls.
B)
consumers pay the entire tax, and there is no deadweight loss because the
equilibrium quantity of good X remains constant.
C)
consumers and producers share the burden of the tax, and there is no deadweight
loss because the equilibrium quantity of good X remains constant.
D)
producers pay the entire tax, and deadweight loss will occur because the
equilibrium quantity of good X falls.
Page 19
83.
To minimize deadweight loss, markets where demand is relatively _____ and supply is
relatively _____ should be taxed.
A)
elastic; inelastic
B)
elastic; elastic
C)
inelastic; elastic
D)
inelastic; inelastic
84.
If demand is inelastic, then deadweight loss will:
A)
be minimized if supply is also inelastic.
B)
be maximized if supply is also inelastic.
C)
decrease if demand becomes more elastic.
D)
increase if supply becomes more inelastic.
Use the following to answer questions 85-87:
Figure and Table: The Market for Taxi Rides
Page 20
85.
(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market
for Taxi Rides. If the government imposes an excise tax of $1 per ride (causing the
supply curve to shift upward by that amount), then the government will collect tax
revenues of _____. However, the tax will cause a _____ deadweight loss to society.
A)
$9 million; $0.5 million
B)
$16 million; $1 million
C)
$45 million; $1 million
D)
$50 million; $0.5 million
86.
(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market
for Taxi Rides. The figure represents a competitive market for taxi rides. If the
government imposes an excise tax of $2 per ride (causing the supply curve to shift
upward by that amount), then the government will collect tax revenues of _____, BUT
the tax will cause a _____ deadweight loss to society.
A)
$8 million; $1 million
B)
$16 million; $2 million
C)
$24 million; $4.5 million
D)
$48 million; $6 million
87.
(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market
for Taxi Rides. If the government imposes an excise tax of $1 per ride (causing the
supply curve to shift upward by that amount), then people who ride taxis will pay _____
of each $1 tax.
A)
$1
B)
$0.50
C)
$0.25
D)
$0.00
Page 21
Use the following to answer questions 88-91:
Figure: The Market for Hamburgers
88.
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of
$0.80 per unit of the good sold, consumer surplus will be reduced by:
A)
$175.
B)
$240.
C)
$105.
D)
$90.
89.
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of
$0.80 per hamburger, producer surplus will be reduced by:
A)
$175.
B)
$240.
C)
$105.
D)
$90.
Page 22
90.
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of
$0.80 per unit of the good sold, the deadweight loss associated with the tax will be:
A)
$40.
B)
$240.
C)
$105.
D)
$90.
91.
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If
the market is originally in equilibrium and the government imposes an excise tax of
$0.80 per unit of the good sold, the government’s revenue from the tax will be:
A)
$175.
B)
$240.
C)
$105.
D)
$90.
92.
When the government imposes an excise tax, the deadweight loss is caused by:
A)
equal the tax revenue paid to the government.
B)
be greater than the tax revenue paid to the government.
C)
be less than the tax revenue paid to the government.
D)
prevention of transactions because of the cost of the tax.
Use the following to answer questions 93-94:
Figure: The Market for Music Downloads
Page 23
93.
(Figure: The Market for Music Downloads) Look at the graph The Market for Music
Downloads. If the government imposes a tax of $3 in this market, the government will
receive tax revenue of:
A)
$20.
B)
$30.
C)
$60.
D)
$75.
94.
(Figure: The Market for Music Downloads) Look at the graph The Market for Music
Downloads. If the government imposes a tax of $3 in this market, the deadweight loss
will equal:
A)
$0.
B)
$22.50.
C)
$26.25.
D)
$52.50.
95.
A tax:
A)
generates tax revenue and causes deadweight loss.
B)
increases consumer and producer surplus.
C)
produces revenue for the government and increases total surplus.
D)
is always efficient.
Use the following to answer questions 96-102:
Figure: The Market for Blue Jeans
Page 24
96.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify tax revenue?
A)
a + b + c
B)
b + d
C)
c + e
D)
d + e + f
97.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify consumer and producer surplus after the tax was levied?
A)
a + b + c
B)
a + b + c + d + e + f
C)
d + e + f
D)
a + f
98.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify deadweight loss?
A)
a + b + c
B)
b + d
C)
c + e
D)
d + e + f
99.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify the loss of consumer surplus due to the tax?
A)
c
B)
b + c
C)
b
D)
a + b + c
100.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas
in the graph identify the loss of producer surplus due to the tax?
A)
d + e
B)
e
C)
d
D)
d + e + f
Page 25
101.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What is the
deadweight loss?
A)
$1,000
B)
$500
C)
$250
D)
$1,250
102.
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What is the tax
revenue?
A)
$1,000
B)
$500
C)
$4,000
D)
$5,000
103.
The two principles of tax fairness are:
A)
the minimize-distortions principle and the maximize-revenue principle.
B)
the benefits principle and the ability-to-pay principle.
C)
the proportional-tax principle and the ability-to-pay principle.
D)
the equity principle and the efficiency principle.
104.
The ability-to-pay principle says that:
A)
the amount of tax paid depends on the measure of value.
B)
those who benefit from public spending should bear the burden of the tax that pays
for that spending.
C)
those with greater ability to pay should pay more tax.
D)
those who benefit from the tax should pay the same percentage of the tax base as
those who do not benefit.
105.
A lump-sum tax, such as the fee for a driver’s license, does not take into consideration:
A)
efficiency.
B)
the benefits principle.
C)
the ability-to-pay principle.
D)
the tax base.
Page 26
106.
Which of the following situations demonstrates the benefits principle?
A)
Employed workers pay taxes that are used to fund technical training programs.
B)
Revenue from the federal tax on gasoline is used to maintain and improve the
interstate highway system.
C)
Most of the revenue from property taxes is used to fund public schools. The taxes
are paid by all homeowners.
D)
Taxes on cigarettes are used to pay state employees’ salaries.
107.
The benefits principle says that:
A)
the amount of tax paid depends on the measure of value.
B)
those who benefit from public spending should bear the burden of the tax that pays
for that spending.
C)
those with greater ability to pay should pay more tax.
D)
those who benefit from the tax should pay the same percentage of the tax base as
those who do not benefit.
108.
Which of the following taxes reflects the ability-to-pay principle?
A)
the federal income tax
B)
the payroll tax
C)
a sales tax on food
D)
Social Security tax
109.
Criteria that economists use in selecting a tax system include:
A)
the ability to pay.
B)
employment status.
C)
consumer debt.
D)
the maximal deadweight loss.
110.
The _____ principle implies that people with _____ should pay more taxes.
A)
ability-to-pay; greater benefits received
B)
benefits; higher incomes
C)
ability-to-pay; higher incomes
D)
benefits; fewer benefits
111.
A principle suggesting that people with more income or wealth should pay more taxes is
the _____ principle.
A)
ability-to-pay
B)
regressive tax
C)
progressive tax
D)
benefits
Page 27
112.
According to the benefits principle, which of the following is the BEST example of
taxation?
A)
personal income tax
B)
sales tax
C)
corporate income tax
D)
gasoline tax
113.
Paying a fee every time you use the municipal golf course is an example of the _____
principle.
A)
benefits
B)
ability-to-pay
C)
progressive tax
D)
regressive tax
114.
Taxation according to the ability-to-pay principle is best illustrated in the United States
by:
A)
sales taxes.
B)
income taxes.
C)
excise taxes.
D)
user fees.
115.
Since the terrorist attacks of September 11, 2001, the Federal Aviation Agency has
added a small security fee to every airplane ticket purchased. This is an example of:
A)
the benefits principle of tax fairness.
B)
a lump-sum tax.
C)
the ability-to-pay principle of tax fairness.
D)
a profits tax.
116.
According to the _____ principle, those who use public services should bear the burden
of the tax that pays for them.
A)
ability-to-pay
B)
tax fairness
C)
benefits
D)
spending
Page 28
117.
According to the _____ principle, those can afford it should pay more tax.
A)
ability-to-pay
B)
tax fairness
C)
benefits
D)
affordability
118.
Which of the following taxes best illustrates the benefits principle of tax fairness?
A)
The local city playground is funded through a tax on all citizens.
B)
Roads and highways are built and maintained through revenue from a tax on
gasoline.
C)
A property tax that is proportional to the value of the home is charged to
homeowners to fund primary and secondary education.
D)
A sales tax on food pays for police and fire protection.
119.
Which of the following taxes best illustrates the ability-to-pay principle of tax fairness?
A)
The local city playground is funded by a tax on all citizens.
B)
Roads and highways are built and maintained by revenue from a tax on gasoline.
C)
A property tax that is proportional to the value of the home is charged to
homeowners to fund primary and secondary education.
D)
A sales tax on food pays for police and fire protection.
120.
A principle suggesting that people with more income or wealth should pay more taxes is
the _____ principle.
A)
ability-to-pay
B)
proportional tax
C)
lump-sum tax
D)
benefits received
121.
Taxation according to the ability-to-pay principle is best illustrated in the United States
by _____ taxes.
A)
sales
B)
personal income
C)
excise
D)
gasoline
122.
Taxation according to the benefits-received principle is best illustrated by the _____ tax.
A)
income
B)
sales
C)
gift
D)
gasoline
Page 29
123.
You have to pay a fee every time you use your community swimming pool. This is an
example of the _____ principle.
A)
regressive tax
B)
ability-to-pay
C)
progressive tax
D)
benefits
124.
If tax efficiency is the only goal, a tax system should be designed to minimize its:
A)
burden.
B)
administrative costs.
C)
impact on the poor.
D)
burden and its administrative costs.
125.
A tax system achieves equity when:
A)
taxes are distributed fairly, however society may define fair.
B)
it minimizes the costs to the economy of tax collection.
C)
it is efficient.
D)
taxes are lump sum.
126.
A tax system achieves efficiency when:
A)
the “right” people actually bear the burden of taxes.
B)
it minimizes the costs to the economy of tax collection.
C)
the tax is fair.
D)
it is in equilibrium.
127.
If a tax system is poorly designed, it may be possible to increase:
A)
efficiency without sacrificing equity.
B)
equity while causing inefficiency.
C)
efficiency by sacrificing equity.
D)
equity without causing inefficiency or increase efficiency without sacrificing
equity.
128.
Suppose Congress passed a new tax system, such that all federal, state, and local taxes
were replaced with one tax: a tax of $14,000 for every person 18 and over. This new tax
system would clearly improve:
A)
tax equity.
B)
tax fairness.
C)
tax efficiency.
D)
government revenue.
Page 30
129.
A tax system _____ when it minimizes the direct and indirect costs to the economy of
tax collection.
A)
is efficient
B)
is equitable
C)
has no deadweight loss
D)
is in equilibrium
130.
A tax system _____ when taxes are distributed fairly.
A)
is efficient
B)
is equitable
C)
has no deadweight loss
D)
is in equilibrium
131.
If a tax system is designed to minimize the sum of its deadweight loss and its
administrative cost, its principal goal is:
A)
maximizing efficiency.
B)
maximizing equity.
C)
maximizing revenue.
D)
minimizing the tax burden.
132.
_____ tax does NOT distort incentives and is best at promoting economic efficiency.
A)
A lump-sum
B)
FICA
C)
A property
D)
An income
133.
If a tax system is well designed:
A)
it maximizes efficiency.
B)
it maximizes fairness.
C)
efficiency can be improved only by making the system less fair.
D)
it maximizes efficiency and equity.
Page 31
134.
Which of the following statements in CORRECT?
A)
If the government can make the tax system fairer without additional inefficiency, it
should do so to maximize equity.
B)
If the government can make the tax system fairer without additional inefficiency,
then the existing tax system is perfectly designed.
C)
There is no trade-off between equity and efficiency in the tax system.
D)
If the government can make the tax system fairer without additional inefficiency, it
should seek to maximize equity at the expense of efficiency.
135.
The richest 20% of families in the United States pay a much _____ share of total income
taxes collected and a _____ share of FICA taxes than their share of total income.
A)
higher; lower
B)
lower; higher
C)
higher; higher
D)
lower; lower
136.
The poorest 20% of families in the United States pay a _____ share of their total income
in taxes.
A)
very large
B)
somewhat large
C)
small
D)
negative
Use the following to answer questions 137-139:
Figure: Income Tax Payments
137.
(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel
or panels best represent the effects of a progressive income tax?
A)
A
B)
B
C)
C
D)
A and B
Page 32
138.
(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel
or panels best represent the effects of a proportional income tax?
A)
A
B)
B
C)
C
D)
A and B
139.
(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel
or panels best represent the effects of a regressive income tax?
A)
A
B)
B
C)
C
D)
A and B
140.
Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes
each year, but Brianna earns $20,000 and Jess earns $10,000. From this information,
you can infer that this tax is:
A)
progressive.
B)
regressive.
C)
proportional.
D)
equitable.
141.
Suppose an income tax is levied on none of the first $1,000, 10% of the next $10,000,
and 20% of the remainder of earnings. This type of tax can be defined as:
A)
progressive.
B)
proportional.
C)
regressive.
D)
equitable.
142.
Suppose an income tax is levied on none of the first $1,000, 10% of the next $9,000,
and 20% of the remainder of earnings. How much tax would Miranda have to pay if she
earned $20,000?
A)
$2,900
B)
$5,000
C)
$4,900
D)
$3,000
Page 33
143.
A _____ tax takes a larger share of the income of high-income taxpayers than of
low-income taxpayers.
A)
sales
B)
regressive
C)
progressive
D)
flat
144.
A tax that rises less than in proportion to income is described as:
A)
progressive.
B)
proportional.
C)
regressive.
D)
structural.
145.
A progressive tax:
A)
takes a larger share of the income of high-income taxpayers than of low-income
taxpayers.
B)
takes a smaller share of the income of high-income taxpayers than of low-income
taxpayers.
C)
takes the same share of the income of high-income taxpayers as it does of
low-income taxpayers.
D)
has no deadweight loss.
146.
Suppose Governor Meridias decides to initiate a state income tax. The first $50,000 of
household income is tax-free, while any income above $50,000 is taxed at 10%. A
household earning $50,000 has a marginal tax rate of _____ and an average tax rate of
_____.
A)
10%; 10%
B)
10%; 0%
C)
0%; 0%
D)
0%; 10%
147.
Suppose Governor Meridias decides to initiate a state income tax. The first $50,000 of
household income is tax-free, while any income above $50,000 is taxed at 10%. The
marginal tax rate for a household earning $75,000 is:
A)
greater than its average tax rate.
B)
less than its average tax rate.
C)
equal to its average tax rate.
D)
3.3%.
Page 34
148.
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 25%, a family earning
$60,000 of income will pay _____ in personal taxes.
A)
$5,000
B)
$8,000
C)
$11,250
D)
$16,000
149.
Paying a tax of $20 on an income of $100, a tax of $15 on an income of $200, and a tax
of $12 on an income of $300 is an example of a:
A)
flat tax.
B)
proportional tax.
C)
progressive tax.
D)
regressive tax.
150.
A _____ tax takes a fixed percentage of income, regardless of the level of income.
A)
proportional
B)
benefits
C)
progressive
D)
regressive
151.
A tax of $10 on an income of $100, $20 on an income of $200, and $30 on an income of
$300 is:
A)
regressive.
B)
proportional.
C)
progressive.
D)
benefits.
152.
A tax that takes a higher percentage of income as income rises is:
A)
proportional.
B)
an ability tax.
C)
progressive.
D)
regressive.
153.
A tax of $10 on an income of $100, $25 on an income of $200, and $60 on an income of
$300 is:
A)
progressive.
B)
proportional.
C)
regressive.
D)
flat.
Page 35
154.
A tax that takes a _____ percentage of income as income _____ is a _____ tax.
A)
lower; rises; progressive
B)
lower; rises; regressive
C)
higher; rises; proportional
D)
higher; falls; proportional
155.
A tax is progressive if the tax payment is:
A)
a fixed percentage of income.
B)
a lower percentage of income as income rises.
C)
a higher percentage of income as income rises.
D)
a higher percentage of income as income falls.
156.
_____ taxes are paid on wages.
A)
Income
B)
Profits
C)
Property
D)
Sales
157.
Annual _____ taxes are paid on the value of a home.
A)
income
B)
profits
C)
sales
D)
property
158.
_____ taxes are paid on the purchase of most consumption goods.
A)
Income
B)
Property
C)
Sales
D)
Wealth
159.
The government imposes a tax of $1,000 per household to fund a new public swimming
pool. This tax is:
A)
regressive.
B)
proportional.
C)
progressive.
D)
flat.
Page 36
160.
A tax of $15 on an income of $200, $10 on an income of $300, and $8 on an income of
$400 is:
A)
constant-rate.
B)
proportional.
C)
progressive.
D)
regressive.
161.
A tax that takes a _____ is _____.
A)
fixed percentage of income; proportional
B)
fixed percentage of income; a benefits tax
C)
a smaller share of high income than of low income; progressive
D)
larger share of high income than of low income; regressive
162.
A tax of $20 on an income of $200, $40 on an income of $400, and $50 on an income of
$500 is:
A)
regressive.
B)
proportional.
C)
progressive.
D)
inverse.
163.
A tax that takes a _____ percentage of income as income rises is _____.
A)
higher; proportional
B)
lower; an ability tax
C)
higher; progressive
D)
lower; a marginal tax
164.
A tax of $20 on an income of $200, $40 on an income of $300, and $80 on an income of
$400 is:
A)
progressive.
B)
proportional.
C)
regressive.
D)
constant-rate.
165.
A regressive tax:
A)
takes a higher percentage of income as income rises.
B)
rises less than in proportion to income.
C)
takes a fixed percentage of income regardless of the taxpayer’s level of income.
D)
takes a larger share of the income of high-income taxpayers than of low-income
taxpayers.
Page 37
166.
A regressive tax takes a:
A)
fixed percentage of income.
B)
lower percentage of income as income rises.
C)
higher percentage of income as income rises.
D)
lower percentage of income as income falls.
167.
In analyzing the impact of a progressive tax system, economists focus on the _____ tax
rate.
A)
average
B)
opportunity
C)
total
D)
marginal
168.
The percentage of an INCREASE in a taxpayer’s income that is taxed away is the _____
tax rate.
A)
marginal
B)
average
C)
total
D)
lower
169.
If the marginal tax rate is higher than the average rate, the tax system is:
A)
proportional.
B)
progressive.
C)
constant.
D)
regressive.
170.
If the marginal tax rate is less than the average tax rate, the tax system is:
A)
proportional.
B)
progressive.
C)
degressive.
D)
regressive.
171.
If the marginal tax rate equals the average tax rate, the tax system is:
A)
proportional.
B)
progressive.
C)
degressive.
D)
regressive.
Page 38
172.
In 2008, the Social Security (FICA) tax was levied only on incomes up to $102,000.
Which of the following statements about this tax is CORRECT?
A)
A worker with an annual income of $50,000 and one with an annual income of
$100,000 paid the same dollar amount of FICA tax.
B)
A worker with an annual income of $200,000 and one with an annual income of
$102,000 paid the same dollar amount of FICA tax.
C)
The top 20% of income earners earned over 50% of total U.S. incomes in 2001,
and they paid approximately 60% of the total FICA taxes collected that year.
D)
The percentage of income paid in FICA taxes was the same for a worker with an
annual income of $50,000 and a worker with an annual income of $100,000.
173.
Income tax rates are such that Mr. R. Hood earns $35,000 per year and pays $7,000 in
taxes, while Mr. G. Gisbourne earns $1 million per year and pays $200,000 in taxes.
This tax is:
A)
progressive.
B)
regressive.
C)
proportional.
D)
a lump-sum tax.
174.
An efficient way to finance the provision of city services such as street cleaning would
be to charge all city residents a lump-sum tax. Such a tax would be:
A)
progressive.
B)
regressive.
C)
proportional.
D)
This question can’t be answered without knowing the amount of the tax.
175.
Suppose Governor Meridias initiates a payroll tax of 10% on all income up to $50,000.
Any income above $50,000 is not taxed. This payroll tax will be:
A)
progressive.
B)
proportional.
C)
regressive.
D)
structural.
Use the following to answer questions 176-179:
Page 39
176.
(Table: Taxes, Spending, and Income) Look at the table Taxes, Spending, and Income.
Suppose Governor Meridias decides to initiate a state tax of 5% on all sales. This tax
will be:
A)
progressive.
B)
proportional.
C)
regressive.
D)
structural.
177.
(Table: Taxes, Spending, and Income) Look at the table Taxes, Spending, and Income.
Suppose Governor Meridias decides to initiate a state tax of 5% on all sales. A poor
household will spend _____ of its annual income on the sales tax, while a wealthy
household will spend _____ of its annual income.
A)
4.5%; 4%
B)
5%; 5%
C)
5%; 3.5%
D)
3.5%; 4.5%
178.
(Table: Taxes, Spending, and Income) Suppose Governor Meridias decides to initiate a
state income tax. The first $50,000 of household income is tax-free, while any income
above $50,000 is taxed at 10%. The tax rate for a household earning $75,000 is:
A)
10%.
B)
5%.
C)
3.3%.
D)
0%.
179.
(Table: Taxes, Spending, and Income) Suppose Governor Meridias initiates a tax of
10% on all income up to $50,000. Income above $50,000 is not taxed. An individual
earning $75,000 will have an average tax rate of:
A)
10%.
B)
0%.
C)
6.67%.
D)
5%.
Page 40
180.
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 25%, a family earning
income equal to $60,000 will pay a marginal tax rate of _____ and an average tax rate of
_____.
A)
12.5%; 25%
B)
10%; 15%
C)
25%; 8.3%
D)
25%; 25%
181.
The _____ rate applies to an additional $1 of taxable income.
A)
marginal
B)
average
C)
total
D)
lower
182.
Eli has annual earnings of $100,000 and Molly has annual earnings of $50,000. Each
consumer goes to the mall and purchases a microwave oven for $100, and each pays an
additional 7%, or $7, in sales tax. This tax is:
A)
regressive.
B)
a wealth tax.
C)
progressive.
D)
a property tax.
183.
U.S. federal taxes are generally _____, while state and local taxes are generally _____.
A)
progressive; progressive
B)
progressive; regressive
C)
regressive; progressive
D)
regressive; regressive
184.
The U.S. income tax is _____, while the FICA tax is _____.
A)
progressive; progressive
B)
progressive; regressive
C)
regressive; progressive
D)
regressive; regressive
Page 41
185.
The _____ tax rate on income represents the additional tax an individual pays if his or
her income goes up by $1. This rate has _____ since 2000.
A)
average; increased
B)
marginal; decreased
C)
marginal; increased
D)
average; decreased
186.
_____ and _____ taxes are the largest sources of state and local government revenue.
A)
Profit; sales
B)
Property; sales
C)
FICA; income
D)
Sales; income
187.
Sales taxes are considered to be:
A)
proportional.
B)
progressive.
C)
degressive.
D)
regressive.
188.
FICA taxes are considered to be:
A)
proportional.
B)
progressive.
C)
flat.
D)
regressive.
189.
The evidence suggests that federal taxes in the U.S. economy are:
A)
regressive.
B)
progressive.
C)
higher than they’ve ever been before.
D)
proportional.
190.
The evidence suggests that taken collectively, taxes in the U.S. economy are:
A)
extremely regressive.
B)
extremely progressive.
C)
somewhat progressive.
D)
proportional.
Page 42
191.
Sales taxes are considered to be:
A)
an unfair burden on wealthy people, who spend more money on goods subject to
sales tax.
B)
progressive.
C)
the most important source of revenue for the federal government.
D)
regressive.
192.
The structure of the U.S. federal income tax system reflects the _____ principle.
A)
efficiency
B)
ability-to-pay
C)
benefits
D)
lump-sum
193.
Which of the following taxes is the largest source of government revenue?
A)
sales
B)
property
C)
individual income
D)
death
194.
The two most important sources of federal revenue are the _____ taxes.
A)
FICA and personal income
B)
corporate income and FICA
C)
excise and personal income
D)
Social Security and excise
195.
_____ tax is NOT a major source of revenue for the federal government.
A)
Income
B)
FICA
C)
Profits
D)
Property
196.
Because of tax competition, state and local taxes tend to be _____; however, federal
taxes tend to be _____.
A)
regressive; regressive
B)
progressive; regressive
C)
progressive; progressive
D)
regressive; progressive
Page 43
197.
A(n) _____ tax tends to encourage consumption and discourage saving and investing.
A)
consumption
B)
sales
C)
poll
D)
income
198.
_____ tax is NOT used in the United States.
A)
Property
B)
Value-added
C)
Profits
D)
Sales
199.
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family
earning an income of $75,000 will pay _____ in personal taxes.
A)
$6,000
B)
$7,500
C)
$11,250
D)
$15,000
200.
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family
earning an income of $75,000 will pay an AVERAGE tax rate of:
A)
5%.
B)
7.5%.
C)
10%.
D)
20%.
201.
If personal income up to and including $25,000 is not taxed, income of $25,001 to
$50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family
earning an income of $75,000 will pay a MARGINAL tax rate of:
A)
5%.
B)
7.5%.
C)
10%.
D)
20%.
Page 44
202.
If personal income up to and including $30,000 is not taxed, income of $30,001 to
$60,000 is taxed at 10%, and income over $60,000 is taxed at 25%, then a family
earning an income of $100,000 will pay _____ in personal taxes.
A)
$6,000
B)
$10,000
C)
$13,000
D)
$25,000
203.
If personal income up to and including $30,000 is not taxed, income of $30,001 to
$60,000 is taxed at 10%, and income over $60,000 is taxed at 25%, then a family
earning an income of $100,000 will pay an AVERAGE tax rate of:
A)
5%.
B)
10%.
C)
13%.
D)
25%.
204.
If personal income up to and including $30,000 is not taxed, income of $30,001 to
$60,000 is taxed at 10%, and income over $60,000 is taxed at 25%, then a family
earning an income of $100,000 will pay a MARGINAL tax rate of:
A)
5%.
B)
10%.
C)
13%.
D)
25%.
Page 45
Use the following to answer questions 205-214:
Figure: Tax Incidence
205.
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
when a good or service is characterized by a relatively elastic supply, as shown in panel
_____, a greater share of the burden of an excise tax is borne by _____.
A)
A; buyers
B)
B; sellers
C)
B; buyers
D)
A; sellers
206.
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
when a good or service is characterized by a relatively inelastic supply, as shown in
panel _____, a greater share of the burden of an excise tax is borne by _____.
A)
A; buyers
B)
B; sellers
C)
A; sellers
D)
B; buyers
Page 46
207.
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
when a good or service is characterized by a relatively elastic demand, as shown in
panel _____, the greater share of the burden of an excise tax on it is borne by _____.
A)
D; buyers
B)
D; sellers
C)
C; sellers
D)
C; buyers
208.
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
when a good or service is characterized by a relatively inelastic demand, as shown in
panel _____, the greater share of the burden of an excise tax on it is borne by _____.
A)
C; buyers
B)
C; sellers
C)
D; sellers
D)
D; buyers
209.
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
the effect of an excise tax on gasoline in the short run is most likely illustrated by panel
_____, and the greater share of the burden of the excise tax (shown by the tax wedge in
each panel) is borne by _____.
A)
C; buyers
B)
D; sellers
C)
C; sellers
D)
D; buyers
210.
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged,
the effect of an excise tax on gasoline in the long run is most likely illustrated by panel
_____, and the greater share of the burden of the excise tax (shown by the tax wedge in
each panel) is borne by _____.
A)
A; buyers
B)
B; sellers
C)
B; buyers
D)
A; sellers
211.
(Figure: Tax Incidence) Look at the figure Tax Incidence. Based on the figure, the
deadweight loss of an excise tax is likely to be greater in panel _____ than in panel
_____.
A)
C; D
B)
C; A
C)
D; A
D)
B; A
Page 47
212.
(Figure: Tax Incidence) Look at the figure Tax Incidence. Based on the figure, the
deadweight loss of an excise tax is likely to be greater in panel _____ than in panel
_____.
A)
D; C
B)
A; B
C)
C; B
D)
B; A
213.
(Figure: Tax Incidence) Look at the figure Tax Incidence. Consumers are likely to bear
more of the burden of an excise tax in the situations illustrated by panels:
A)
A and B.
B)
A and D.
C)
B and D.
D)
B and C.
214.
(Figure: Tax Incidence) Look at the figure Tax Incidence. Producers are likely to bear
more of the burden of an excise tax in the situations illustrated by panels:
A)
A and B.
B)
A and C.
C)
B and D.
D)
B and C.
Use the following to answer questions 215-218:
Figure: The Gasoline Market
Page 48
215.
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. The pretax
equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An
excise tax has been levied on each gallon of gasoline supplied by producers. Based on
the graph, the incidence of the tax on suppliers is:
A)
$1.50.
B)
$1.
C)
$0.75.
D)
$15,000.
216.
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. The pretax
equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An
excise tax has been levied on each gallon of gasoline supplied by producers, shifting the
supply curve upward. What is the tax rate?
A)
$1.75 per gallon
B)
$1 per gallon
C)
$2.50
D)
$0.50
217.
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. The pretax
equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An
excise tax has been levied on each gallon of gasoline supplied by producers, shifting the
supply curve upward. The total tax revenue collected by the government is equal to:
A)
$1.50.
B)
$15,000.
C)
$26,250.
D)
$30,000.
218.
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. The pretax
equilibrium price is $3, and the equilibrium quantity before tax is 20,000 gallons. An
excise tax has been levied on each gallon of gasoline, shifting the supply curve upward.
The deadweight loss from this tax is equal to:
A)
$1.50.
B)
$5,000.
C)
$15,000.
D)
$4,375.
Page 49
Use the following to answer questions 219-223:
Figure: The Market for Lattes
219.
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. If the
government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte
after the tax will:
A)
increase from $2 to $2.75.
B)
increase from $2 to $2.50.
C)
increase from $2 to $2.25.
D)
change, but we cannot determine by how much.
220.
(Figure: The Market for Lattes) Look at the figure The Market for Lattes. If the
government assesses a tax of $0.75 on sellers of lattes, the price producers will receive
for a latte after the tax will:
A)
decrease from $2 to $1.75.
B)
decrease from $2 to $1.50.
C)
decrease from $2 to $1.25.
D)
change, but we cannot determine by how much.
221.
(Figure: The Market for Lattes) If an excise tax of $1.50 is assessed on each latte,
government revenue will be:
A)
$400.
B)
$600.
C)
$800.
D)
$1,200.
Page 50
222.
(Figure: The Market for Lattes) If an excise tax of $2.25 is assessed on each latte,
government revenue will be:
A)
$225.
B)
$400.
C)
$450.
D)
$1,800.
223.
(Figure: The Market for Lattes) If the excise tax increases from $1.50 to $2.25 per latte,
government revenue will _____ by _____.
A)
decrease; $150
B)
decrease; $75
C)
increase; $150
D)
increase; $225
Use the following to answer questions 224-233:
Figure: The Market for Yachts
224.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $60,000 tax on yachts and collects it from the consumers, the
_____ curve will shift _____ by _____.
A)
supply; upward; $30,000
B)
supply; upward; $60,000
C)
demand; downward; $30,000
D)
demand; downward; $60,000
Page 51
225.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A quota of
_____ will bring about the same price and output in the market for yachts as would an
excise tax of $30,000.
A)
2,000
B)
3,000
C)
4,000
D)
The answer is impossible to determine.
226.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A price
_____ of _____ will bring about the same price and output in the market for yachts as
would an excise tax of $30,000.
A)
ceiling; $80,000
B)
ceiling; $100,000
C)
floor; $120,000
D)
floor; $140,000
227.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $60,000 tax on yachts (collected from the producers), consumers
will pay _____ of the tax and producers will pay _____.
A)
$30,000; $30,000
B)
$40,000; $20,000
C)
$20,000; $40,000
D)
$10,000; $50,000
228.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A quota of
_____ will bring about the same price and output in the market for yachts as would an
excise tax of $60,000.
A)
2,000
B)
3,000
C)
4,000
D)
The answer is impossible to determine.
229.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A price
_____ of _____ will bring the about the same price and output in the market for yachts
as would an excise tax of $60,000.
A)
ceiling; $80,000
B)
ceiling; $100,000
C)
floor; $100,000
D)
floor; $160,000
Page 52
230.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $30,000 tax on yachts and collects it from the yacht suppliers, the
_____ curve will shift _____ by _____.
A)
demand; downward; $15,000
B)
supply; upward; $15,000
C)
supply; upward; $30,000
D)
demand; downward; $30,000
231.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $60,000 tax on yachts (collected from the producers), the price of
yachts will rise to _____ and the government will collect _____.
A)
$100,000; $120 million
B)
$120,000; $90 million
C)
$140,000; $90 million
D)
$160,000; $120 million
232.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $30,000 tax on yachts (collected from the producers), the price of
yachts will rise to _____ and the government will collect _____.
A)
$100,000; $120 million
B)
$120,000; $90 million
C)
$140,000; $90 million
D)
$160,000; $120 million
233.
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. If the
government imposes a $30,000 tax on yachts (collected from the producers), consumers
will pay _____ of the tax and producers will pay _____.
A)
$20,000; $10,000
B)
$15,000; $15,000
C)
$10,000; $20,000
D)
$5,000; $25,000
234.
If the government wants to limit sales of a particular good, it may do so by imposing a
quota. However, the same reduction in sales may be achieved by an appropriately
chosen excise tax.
A)
True
B)
False
Page 53
235.
The price that buyers pay and the price that sellers receive in the presence of an excise
tax are unaffected by which of these groups officially pays the tax.
A)
True
B)
False
236.
In general, the incidence of an excise tax is shared between buyers and sellers.
A)
True
B)
False
237.
If the government imposes a $500 excise tax on SUVs and the demand curve for SUVs
is downward-sloping, suppliers of SUVs will simply raise the price by $500 and
consumers will bear the entire burden of the tax.
A)
True
B)
False
238.
If demand for a good is perfectly inelastic, then consumers will bear the entire burden of
an excise tax imposed on that good.
A)
True
B)
False
239.
The FICA tax falls most heavily on workers because the price elasticity of demand for
labor is greater than the price elasticity of supply of labor.
A)
True
B)
False
240.
Although employers and wage earners each pay 50% of the FICA tax, the tax reduces
wages to the extent that the incidence of the tax falls almost entirely on workers.
A)
True
B)
False
241.
The deadweight loss of an excise tax arises because the tax prevents some mutually
beneficial transactions.
A)
True
B)
False
Page 54
242.
The administrative costs of a tax include the costs incurred by the government in
collecting the tax (such as the costs of operating the Internal Revenue Service) but
exclude the costs incurred by individuals in paying the tax (such as accountants’ fees).
A)
True
B)
False
243.
Cigarette taxes have eliminated the wedge between the demand price for cigarettes and
the supply price of cigarettes.
A)
True
B)
False
244.
If the government imposes a per-unit tax on good Y and the supply of good Y is
perfectly inelastic, there will be no deadweight loss due to the tax.
A)
True
B)
False
245.
To minimize deadweight loss, excise taxes should be levied on goods with inelastic
demand and inelastic supply rather than goods with elastic demand and elastic supply.
A)
True
B)
False
246.
If demand is perfectly inelastic, the deadweight loss caused by a tax will be zero.
A)
True
B)
False
247.
The benefits principle says that taxes should be used to benefit the maximum number of
people.
A)
True
B)
False
248.
For a tax system to achieve equity, it must first achieve efficiency.
A)
True
B)
False
249.
An excise tax causes a loss in efficiency because taxes distort incentives.
A)
True
B)
False
Page 55
250.
Economic policies often involve trade-offs between efficiency and equity. Fortunately,
tax policy is an exception because it is easy to find taxes that are both efficient and fair.
A)
True
B)
False
251.
Lump-sum taxes promote economic efficiency but violate the ability-to-pay principle.
A)
True
B)
False
252.
The argument for progressive taxes is based on the ability-to-pay principle.
A)
True
B)
False
253.
A tax system achieves efficiency when it maximizes the amount of tax paid by the
wealthiest citizens.
A)
True
B)
False
254.
Tax structure refers to what a tax is levied on (e.g., income, property, profits), and tax
base refers to the base (or lowest) rate of taxation on a particular tax structure.
A)
True
B)
False
255.
If the marginal tax rate and the average tax rate are equal for all levels of income, then
the tax structure is proportional.
A)
True
B)
False
256.
Overall, the taxes collected by the federal government are progressive.
A)
True
B)
False
257.
In the United States, poor people and the middle class pay the largest share of income
taxes.
A)
True
B)
False
Page 56
258.
Tax cuts authorized between 2000 and 2004 tended to favor the rich, but the federal tax
system remains progressive overall. However, taxes at the state and local level are
regressive.
A)
True
B)
False
259.
Explain how an excise tax levied on suppliers affects the supply curve.
260.
A politician says that a tax on good X will not increase the price of good X paid by
consumers. Is there any way that this can be an accurate statement?
261.
Under what supply and demand conditions would an excise tax impose a large incidence
on suppliers and a small incidence on consumers? Explain how this works.
262.
What is the difference between a tax rate and a tax revenue?
263.
How is it that a higher tax rate can increase tax revenue in some cases but decrease it in
other cases? Relate this to the price elasticity of demand.
264.
How does an excise tax impose a cost on society?
265.
What supply and demand conditions cause zero deadweight loss when an excise tax is
imposed?
266.
Some highways and bridges have toll charges. Which principle of tax fairness does this
describe?
267.
Periodically cars and trucks must be relicensed. The licensing fees are a form of a tax.
Design a licensing tax that is regressive and one that is progressive.
268.
Suppose the supply of tobacco is elastic and the demand for tobacco is inelastic. If an
excise tax is levied on the suppliers of tobacco, will the incidence fall mostly on
consumers or mostly on producers? Will there be a large amount or small amount of
deadweight loss? Will tax revenue from the tobacco tax fall or rise?
Page 57
269.
Producers in a particular market will bear the greater burden of an excise tax:
A)
the more price-elastic the demand is relative to supply.
B)
the less price-elastic demand is relative to supply.
C)
if demand has the same price elasticity as supply.
D)
regardless of the price elasticity of demand or supply.
270.
Consumers in a particular market will bear the greater burden of an excise tax:
A)
the more price-elastic supply is relative to demand.
B)
the less price-elastic supply is relative to demand.
C)
if supply has the same price elasticity as demand.
D)
regardless of the price elasticity of demand or supply.
271.
Suppose price elasticity of demand is relatively inelastic for good X. If the price
elasticity of supply for good X is elastic and an excise tax is imposed on good X, who
will bear the greater burden of the tax?
A)
consumers
B)
producers
C)
both consumers and producers equally
D)
government
272.
Suppose the price elasticity of demand is relatively elastic and the price elasticity of
supply is relatively inelastic in a specific market. If an excise tax is imposed on this
good, who will bear the greater burden of the tax?
A)
consumers
B)
producers
C)
both consumers and producers equally
D)
government
273.
When the imposition of an excise tax causes the quantity demanded and quantity
supplied to decrease relative to the no-tax equilibrium, this will result in:
A)
deadweight loss.
B)
increases in producer surplus.
C)
increases in consumer surplus.
D)
increases in both consumer and producer surplus.
Page 58
274.
Price elasticities of demand and supply will NOT play a major role in determining:
A)
the ability of policy makers to change consumption of a good via the imposition of
an excise tax.
B)
the deadweight loss arising from the imposition of an excise tax.
C)
the burden of the tax on consumers and producers.
D)
administrative costs of imposing an excise tax.
275.
Deadweight losses arising from an excise tax are greatest when demand:
A)
and supply are relatively inelastic.
B)
is relatively inelastic and supply is relatively elastic
C)
is relatively elastic and supply is relatively inelastic.
D)
and supply are relatively elastic.
276.
The ability-to-pay principle regarding taxes suggests that:
A)
the efficiency of a tax is the key feature in designing it.
B)
those who can afford it should bear the greater burden of the tax.
C)
those who benefit most from the tax should bear the greater burden of the tax.
D)
higher-income individuals should pay the same amount as lower-income
individuals.
277.
The benefits principle of taxation means individuals pay according to:
A)
whether and how much they use a good or service.
B)
benefits gained by society as a whole.
C)
benefits to government from having taxpayers.
D)
ability to pay.
Use the following to answer questions 278-281:
Page 59
278.
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
A regressive tax structure can be found in:
A)
proposal 1.
B)
proposal 2.
C)
proposal 3.
D)
all of the proposals.
279.
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
Policy makers interested in implementing a progressive tax structure would suggest
using:
A)
proposal 1.
B)
proposal 2.
C)
proposal 3.
D)
all of the proposals, since all are progressive.
280.
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
If one wished to use a proportional or flat tax structure, one should use proposal _____,
in which the percentage of income taxed is _____.
A)
1; 20%
B)
2; 10%
C)
3; 20%
D)
2; 20%
281.
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals.
What percentage of income does an individual pay in taxes under proposal 3 if that
individual’s pretax income is $100,000?
A)
2%
B)
10%
C)
20%
D)
25%
282.
A regressive tax structure is one in which taxes:
A)
rise less than in proportion to income.
B)
rise more than in proportion to income.
C)
rise exactly in proportion to income.
D)
stay the same regardless of income changes.
Page 60
283.
The percentage of an increase in income that is taxed is:
A)
the marginal rate.
B)
a regressive tax.
C)
a flat tax.
D)
after tax.
284.
In the United States, taxes tend to be regressive at:
A)
federal, state, and local levels.
B)
federal and state levels.
C)
state and local levels.
D)
no levels of government.
285.
All of the following are costs associated with the imposition of a tax EXCEPT:
A)
deadweight loss.
B)
administrative cost.
C)
revenues.
D)
equilibrium pricing.
Use the following to answer questions 286-292:
Figure: A Market with a Tax
286.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The excise tax
imposed on this good is equal to:
A)
P1 – P2.
B)
P1 – P3
C)
P2 – P3.
D)
P1 – P5.
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287.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. Before the tax is
imposed, consumer surplus is equal to the areas:
A)
A + B + C + D + E.
B)
A + B + C.
C)
A + B + C + D + E + F.
D)
D + E + F.
288.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. Before the tax,
producer surplus is equal to the areas:
A)
A + B + C + D.
B)
D + E + F + G.
C)
A + B + C + D + E + F.
D)
A + B + C.
289.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The tax revenue
collected by the government is equal to the area:
A)
(P1 – P3)Q1.
B)
(P1 – P5)Q2.
C)
(P2 – P3)Q1.
D)
(P1 – P2)Q2.
290.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The transfer of
consumer surplus to the government is equal to the area:
A)
B.
B)
C.
C)
D.
D)
F.
291.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The deadweight
loss arising from the imposition of this tax is equal to the areas:
A)
B + D
B)
D + E.
C)
B + C.
D)
C + F.
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292.
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The efficiency
loss resulting from this tax is:
A)
(P1 – P3)Q2.
B)
(P1 – P2)Q1
C)
0.5(P1 – P3)(Q2 – Q1).
D)
0.5(P1 – P3)Q1.
Use the following to answer questions 293-298:
Scenario: The Market for Good X:
The market for good X can be depicted with the following demand and supply equations:
Demand: P = 50 – 0.5Q
Supply: P = 0.33Q
where P is price per unit and Q represents quantity in units. Policy makers plan on imposing a $1
per unit tax on this good.
293.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a
$1 per unit tax is imposed on this good, the new supply curve will be:
A)
P = 0.33Q + 1.
B)
P = 50 – 0.5Q
C)
P = 0.33Q – 1.
D)
P = 0.33Q + 1 + 50 – 0.5Q.
294.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a
$1 per unit tax is imposed, the price of good X will increase by:
A)
$20.00.
B)
$0.60.
C)
$1.00.
D)
$1.50.
295.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a
$1 per unit tax is imposed, the deadweight loss associated with the tax will be equal to:
A)
$1.00.
B)
$20.00.
C)
$0.50.
D)
$0.60.
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296.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The
tax revenue collected by government from a $1 per unit tax will be:
A)
$1.00.
B)
$58.80.
C)
$60.00.
D)
$60.50.
297.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The
per-unit tax incidence on producers is equal to:
A)
$1.00.
B)
$0.40.
C)
$58.80.
D)
$60.00.
298.
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The
per-unit tax incidence on consumers is equal to:
A)
$1.00.
B)
$0.60.
C)
$58.80.
D)
$60.00.
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