1) The U.S. federal government collects taxes in a number of ways. Rank the following
sources of revenue from the largest to the smallest.
a.corporate income taxes, individual income taxes, social insurance taxes
b.social insurance taxes, individual income taxes, corporate income taxes
c.individual income taxes, social insurance taxes, corporate income taxes
d.individual income taxes, corporate income taxes, social insurance taxes
2) Suppose that the government taxes income in the following fashion: 30 percent of
the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over
$50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following
statements is correct?
a.Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent.
b.Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.
c.Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent.
d.Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent.
3) Rick buys a 1966 Mustang for $3,000, planning to restore and sell the car. He goes
on to spend $9,000 restoring the car. At this point he can sell the car for $10,000. As an
alternative, he can spend an additional $3,000 replacing the engine. With a new engine
the car would sell for $13,000. Rick should
a.complete the repairs and sell the car for $13,000.
b.sell the car now for $10,000.
c.never try such an expensive project again.
d.be indifferent between (i) selling the car now and (ii) replacing the engine and then
4) From society's standpoint, cooperation among oligopolists is
a.desirable, because it leads to less conflict among firms and a wider variety of products
b.desirable, because it leads to an outcome closer to the competitive outcome than what
would be observed in the absence of cooperation.
c.undesirable, because it leads to output levels that are too low and prices that are too
d.undesirable, because it leads to output levels that are too high and prices that are too