13) Ann pays $3,850 in taxes on an income of $38,500. Therefore her
A) marginal tax rate must be ten percent.
B) taxes must be progressive in nature.
C) average tax rate must be ten percent.
D) personal exemption is ten percent.
E) proportional tax rate is undefined.
14) The average tax rate equals
A) (total tax ÷ change in income) × 100.
B) (change in tax ÷ total income) × 100.
C) (total tax ÷ total income) × 100.
D) (change in tax ÷ change in income) × 100.
E) (marginal tax are × total income) × 100.
15) The average tax rate
A) can be calculated by summing all the marginal tax rates up to the level of income for which
the average is being calculated.
B) is the marginal tax rate divided by the total tax.
C) is the percentage of income paid as taxes.
D) equals income divided by amount of taxes paid.
E) equals the marginal tax rate multiplied by total taxable income.
16) If the average tax rate increases as income increases, the tax is
A) progressive.
B) proportional.
C) regressive.
D) an excise tax.
E) a decreasing marginal-rate tax.
17) If the average tax rate increases as income increases, then the
A) tax is regressive tax.
B) tax is a progressive tax.
C) tax is a proportional tax.
D) income is tax exempt so that no tax needs to be paid on it.
E) marginal tax rate must be falling as income increases.
18) If the average tax rate increases as income increases, the tax is a
A) progressive tax.
B) regressive tax.
C) proportional tax.
D) marginal tax.
E) production-efficient tax.
19) If the average tax rate remains constant as income changes, the tax is
A) progressive.
B) proportional.
C) regressive.
D) definitely fair.
E) impossible to determine with the information given.
20) A tax that has the same average rate at all levels is
A) a proportional tax.
B) a regressive tax.
C) a marginal tax.
D) a sales tax.
E) an efficient-price tax.
21) When each taxpayer pays the same average tax rate regardless of the taxpayer’s income, the
tax is
A) a regressive tax.
B) a progressive tax.
C) an estate tax.
D) a proportional tax.
E) an efficient-price tax.
22) If the average tax rate ________ as income increases, then the tax is a ________ tax.
A) does not change; proportional
B) does not change; regressive
C) decreases; progressive
D) decreases; proportional
E) increases; regressive
23) With a proportional tax, as income increases the amount of tax paid
A) eventually phases out to zero.
B) rises as a percentage of income.
C) falls as a percentage income.
D) remains constant as a percentage of income.
E) first rises and then falls as a percentage of income.
24) If the average tax rate falls as income increases, the tax is
A) progressive.
B) proportional.
C) regressive.
D) vertically unfair.
E) impossible to determine with the information given.
25) A tax for which the average tax rate decreases as income increases is defined as
A) a proportional tax.
B) a regressive tax.
C) a progressive tax.
D) a sales tax.
E) an efficient-quantity tax.
26) Suppose everybody paid the same total amount of tax regardless of their income. This type
of tax system would be
A) regressive.
B) proportional.
C) progressive.
D) marginal.
E) efficient.
27) Assume that the government passes a tax so that every individual must pay $100. This tax is
a
A) progressive tax.
B) proportional tax.
C) regressive tax.
D) marginal tax.
E) type of tax that is impossible to determine without more information.
28) The sales tax in Dutchess County, New York, is 7.5 percent. This sales tax is
A) fair because everyone pays the same tax.
B) proportional.
C) regressive.
D) progressive.
E) an example of the benefit principle of taxation.
29) If Sam pays $2,000 in taxes on an income of $20,000 and $2,800 in taxes on an income of
$30,000, the tax rate is
A) regressive.
B) proportional.
C) progressive.
D) vertically fair
E) not enough information is given to determine the answer.
30) If there is an income tax levied on workers, the labor demand curve ________ and the labor
supply curve ________.
A) shifts rightward; does not shift
B) shifts leftward; does not shift
C) does not shift; shifts rightward
D) does not shift; shifts leftward
E) shifts leftward; shifts leftward
31) If there is an income tax levied on employers, the labor demand curve ________ and the
labor supply curve ________.
A) shifts rightward; does not shift
B) shifts leftward; does not shift
C) does not shift; shifts rightward
D) does not shift; shifts leftward
E) shifts leftward; shifts leftward
32) What happens to the acceptable wage rate at each level of employment once an income tax is
levied on workers?
A) Nothing, it remains the same.
B) It increases by the amount of the tax that must be paid.
C) Workers and employers split the tax, so the acceptable wage increases by half the tax.
D) Because workers have to work more to make up for the tax, the acceptable wage rate falls by
some amount that cannot be determined.
E) Because workers have to work more to make up for the tax, the acceptable wage rate falls by
the precise amount of the tax that must be paid.
33) Suppose that, after government imposed an income tax, the wages paid by employers rose
$1.00 and the wages received by employees fell by $0.20. What does that reveal about the
elasticities of supply and demand?
A) Supply is more elastic than demand.
B) Demand is more elastic than supply.
C) Supply and demand are equally elastic.
D) Both the supply and demand are inelastic.
E) Nothing because more information is needed to learn about the elasticities.
34) The deadweight loss of a tax on labor income is
A) larger for high-wage workers than for low-wage workers.
B) not part of the total burden of a tax.
C) not a burden workers do not pay that tax.
D) zero for all workers because the supply of labor is perfectly inelastic.
E) zero for low income workers and small for high income workers.
35) A tax on labor income ________ a deadweight loss for low-wage workers and ________ a
deadweight loss for high-wage workers.
A) creates; creates
B) creates; does not create
C) does not create; creates
D) does not create; does not creates
E) eliminates; eliminates
36) Taxes on labor income ________ a deadweight loss and ________ the supply of labor.
A) create; decrease
B) do not create; increase
C) create; increase
D) do not create; decrease
E) create; do not change
37) The figure above shows the labor supply and labor demand curves for personal trainers in the
state of Florida. The initial equilibrium hourly wage is $10. Suppose the state of Florida
institutes an income tax of $6 an hour in order to buy voting machines for the next election. With
the tax in place, the labor supply curve will
A) remain at LS.
B) shift to LS1.
C) shift to LS2.
D) change so that it becomes the same as LD.
E) None of the above answers is correct.
38) The figure above shows the labor supply and labor demand curves for personal trainers in the
state of Florida. The initial equilibrium hourly wage is $10. Suppose the state of Florida
institutes an income tax of $6 an hour in order to buy voting machines for the next election. How
much of the tax is paid by employers?
A) $0
B) $2
C) $4
D) $6
E) $600
39) The figure above shows the labor supply and labor demand curves for personal trainers in the
state of Florida. The initial equilibrium hourly wage is $10. Suppose the state of Florida
institutes an income tax of $6 an hour in order to buy voting machines for the next election. How
much of the tax is paid by employees?
A) $0
B) $2
C) $4
D) $6
E) $600
40) The figure above shows the labor supply and labor demand curves for personal trainers in the
state of Florida. The initial equilibrium hourly wage is $10. Suppose the state of Florida
institutes an income tax of $6 an hour in order to buy voting machines for the next election. The
deadweight loss from this tax equals the region
A) abe.
B) bce.
C) cef.
D) efg.
E) cdf.
41) The above figure shows the labor market for land surveyors. Dave is a land surveyor. What
is the tax incidence for this income tax?
A) Though the employer pays some of the tax, Dave pays more of the income tax than his
employer.
B) Dave pays the same amount of the income tax as his employer.
C) While Dave pays some of tax, Dave pays less of the income tax than his employer.
D) Dave does not pay any tax.
E) Dave’s employer does not pay any tax.
42) The above figure shows the labor market for land surveyors. Dave is a land surveyor. What
is the total income tax Dave pays each year?
A) $1,500
B) $4,500
C) $3,000
D) $40,500
E) $45,000
43) The above figure shows the labor market for land surveyors. Dave is a land surveyor. If
there was no income tax, Dave would work ________ hours per year and the wage rate would be
________ per hour.
A) 2000; $28
B) 1500; $28
C) 1500; $27
D) 2000; $30
E) 1500; $30
44) The above figure shows the labor market for land surveyors. Dave is a land surveyor. With
the income tax, Dave works ________ hours per year and his after-tax wage rate is ________ per
hour.
A) 2000; $28
B) 1500; $28
C) 2000; $30
D) 1500; $30
E) 1500; $27
45) The above figure shows the labor market for land surveyors. Dave is a land surveyor. The
total tax paid by Dave’s employer is equal to
A) area D + area F.
B) area D + area G.
C) area B + area C + area E + area F.
D) area B + area C.
E) area A.
46) The above figure shows the labor market for land surveyors. Dave is a land surveyor. The
total tax paid by Dave is equal to
A) area B + area C.
B) area B + area C + area E + area F.
C) area E + area F.
D) area D + area G.
E) area A.
47) The above figure shows the labor market for land surveyors. The deadweight loss from the
tax is equal to
A) area D + area F.
B) area D + area G.
C) area B + area C.
D) area B + area C + area E + area F.
E) area A.
48) The above figure shows the labor market for land surveyors. The total amount collected as
taxes equals
A) area B + area C + area E + area F.
B) area D + area G.
C) area D + area F.
D) area B + area C.
E) area A.
49) Because the supply of capital is highly elastic, taxing the income from capital results in
i. firms that demand capital paying the greater share of the tax.
ii. a decrease in the equilibrium quantity of capital.
iii. a deadweight loss.
A) i only
B) ii only
C) i and iii
D) ii and iii
E) i, ii, and iii
50) If the supply of capital is perfectly ________ end up paying the tax on capital income.
A) elastic, lenders
B) elastic, firms that demand capital
C) inelastic, lenders
D) inelastic, firms that demand capital
E) unit elastic, firms that demand capital
51) If the supply of capital is perfectly elastic, a tax on capital income results in
A) a deadweight loss and lenders pay all of the tax.
B) a deadweight loss and borrowers (firms) pay all of the tax.
C) no deadweight loss and borrowers (firms) and lenders split the tax.
D) no deadweight loss and lenders pay all of the tax.
E) no deadweight loss and borrowers (firms) pay all of the tax.
52) As a result of the tax on capital, labor productivity
A) increases.
B) decreases.
C) fluctuates.
D) does not change.
E) might change but whether it increases, decreases, or does not change depends on the
magnitude of the tax.
53) The elasticity of supply of capital is larger than the elasticity of supply of land, so a tax on
capital has ________ deadweight loss and a ________ effect on the equilibrium quantity than
does an equal tax on land.
A) a larger; larger
B) a larger; smaller
C) a smaller; larger
D) a smaller; smaller
E) no; smaller
54) The above figure shows the market for capital. Without a tax on capital income, the interest
rate is ________ and firms use ________ million of capital.
A) 4 percent; $1,000
B) 3 percent; $2,000
C) 4 percent; $1,000
D) 2 percent; $1,000
E) 2 percent; $2,000
55) The above figure shows the market for capital. With the tax on capital income, the interest
rate is ________ and firms use ________ million of capital.
A) 2 percent; $2,000
B) 3 percent; $2000
C) 6 percent; $1,000
D) 4 percent; $1,000
E) 2 percent; $1,000
56) The above figure shows the market for capital. With the tax on capital income, the
deadweight loss is equal to
A) area A + area B + area C.
B) area C + area D + area G.
C) area C.
D) area B + area F.
E) area D.
57) The above figure shows the market for capital. With the tax on capital income, the total tax
paid is equal to
A) area C.
B) area B.
C) area A + area B + area C.
D) area C + area D + area G.
E) area B + area F.
58) Which resource has the least elastic supply?
A) labor
B) capital
C) land
D) money
E) taxes
59) A tax imposed on a resource’s income is paid by both the resource’s owners and the
resource’s employers, except for a tax
A) on labor income.
B) on the income of capital.
C) on land rent.
D) that is imposed on employers.
E) that is imposed on employees.
60) If highly paid entertainers prefer to perform and would do so even if their pay were much
lower, a tax of half of the entertainers’ incomes would do which of the following?
A) Decrease the amount of entertaining done by moving along a given labor supply curve.
B) Decrease the entertainers’ supply of performances.
C) Collect no taxes at all.
D) Not change the quantity supplied of performances.
E) Would increase the entertainers’ supply of performances as they work more to make up the
income they lose in taxes.
61) Because the supply of land is perfectly inelastic, a tax on land income is
A) paid entirely by the suppliers.
B) paid entirely by the demanders.
C) shared equally between the suppliers and the demanders.
D) shared, but not equally, between the suppliers and the demanders.
E) creates a deadweight loss.
62) A tax on land or other resource with a perfectly inelastic supply
A) is efficient because it does not decrease the equilibrium quantity.
B) has no deadweight loss.
C) is paid entirely by the owner.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
63) Because the supply of land is perfectly inelastic, when governments tax land, the tax
A) creates a deadweight loss because the supply is fixed.
B) decreases both the demand for and the supply of land.
C) creates no deadweight loss because the equilibrium quantity is the same as without the tax.
D) increases the supply of land because the landlord pays all of the tax.
E) decreases the supply of land because the landlord pays all of the tax.
64) From the standpoint of efficiency, imposing a tax on what type of resource is best because it
creates the least inefficiency?
A) a resource with a perfectly elastic supply
B) a resource with a perfectly elastic demand
C) a resource that earns a high reward
D) a resource with a fixed supply
E) a resource that earns a low reward.
65) If the social security tax imposed on employers increases, then
A) firms’ demand for labor increases.
B) workers’ supply of labor increases.
C) firms’ demand for labor decreases.
D) firms’ demand for labor does not change.
E) the equilibrium quantity of employment increases.
66) Suppose the government increases the social security tax imposed on employers by 25
percent. This tax leads to
A) an increase in the supply of labor.
B) a decrease in the supply of labor.
C) a decrease in the demand for labor.
D) no change in the demand for labor.
E) a decrease in the supply of labor and an increase in the demand for labor.