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Tests, Surveys, and Pools Tests
Test Canvas : TestBanks Chapter 07: Taxes
Microeconom ics, 3e
Test Canvas: TestBanks Chapter 07: Taxes
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1. True/False: If the government wants to limit sale...
Question 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.
2. True/False: The price that buyers pay and the pri...
Question 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.
3. True/False: In general, the incidence of an excis...
Question In general, the incidence of an excise tax is shared between buyers and sellers.
4. True/False: If the government imposes a $500 exci...
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Question If the government imposes a $500 excise tax on SUVs, suppliers of SUVs will
simply raise the price by $500 and consumers will bear the entire burden of the
tax.
5. True/False: The FICA tax falls most heavily on wo...
Question 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.
6. True/False: Although employers and wage earners e...
Question 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.
7. True/False: If demand for a good is perfectly ine...
Question If demand for a good is perfectly inelastic, then consumers will bear the entire
burden of an excise tax imposed on that good.
8. True/False: The deadweight loss of an excise tax ...
Question The deadweight loss of an excise tax arises because the tax prevents some
mutually beneficial transactions.
9. True/False: The administrative costs of a tax inc...
Question 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).
10. True/False: Cigarette taxes have had the effect o...
Question Cigarette taxes have had the effect of eliminating the wedge between the demand
price for cigarettes and the supply price of cigarettes.
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11. True/False: If the government imposes a per-unit ...
Question 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.
12. True/False: To minimize deadweight loss, excise t...
Question 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.
13. True/False: If demand is perfectly inelastic, the...
Question If demand is perfectly inelastic, the deadweight loss caused by a tax will be zero.
14. True/False: The benefits principle says that taxe...
Question The benefits principle says that taxes should be used to benefit the maximum
number of people.
15. True/False: For a tax system to achieve equity, i...
Question For a tax system to achieve equity, it must first achieve efficiency.
16. True/False: A tax system causes a loss in efficie...
Question A tax system causes a loss in efficiency because taxes distort incentives.
17. True/False: Economic policies often involve trade...
Question
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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.
18. True/False: Lump-sum taxes promote economic effic...
Question Lump-sum taxes promote economic efficiency but violate the ability-to-pay
principle.
19. True/False: The argument for progressive taxes is...
Question The argument for progressive taxes is based on the ability-to-pay principle.
20. True/False: A tax system achieves efficiency when...
Question A tax system achieves efficiency when it maximizes the amount of tax paid by the
wealthiest citizens.
21. True/False: Tax structure refers to what a tax is...
Question 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.
22. True/False: If the marginal tax rate and the aver...
Question If the marginal tax rate and the average tax rate are equal for all levels of income,
then the tax structure is proportional.
23. True/False: Overall, the taxes collected by the f...
Question Overall, the taxes collected by the federal government are progressive.
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24. True/False: In the United States, poor people and...
Question In the United States, poor people and the middle class pay the largest share of
income taxes.
25. True/False: Tax cuts authorized between 2000 and ...
Question 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.
26. Multiple Choice: Suppose the government decides to fig...
Question Suppose the government decides to fight obesity in America by imposing an
excise tax based on the saturated fat content of food. The effect of this tax would
be to:
27. Multiple Choice: Suppose the government imposes a $10 ...
Question Suppose the government imposes a $10 excise tax on the sale of sweaters by
charging suppliers $10 for each sweater sold. Using economic analysis, we would
predict that:
28. Multiple Choice: An excise tax that the government col...
Question An excise tax that the government collects from the producers of a good:
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29. Multiple Choice: Recently, the government considered a...
Question 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, we would expect:
30. Multiple Choice: If an excise tax is imposed on automo...
Question If an excise tax is imposed on automobiles and collected from consumers,
31. Multiple Choice: The incidence of a tax:
Question The incidence of a tax:
Answer is a measure of the revenue the government receives from the tax.
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32. Multiple Choice: An excise tax causes inefficiency bec...
Question An excise tax causes inefficiency because the number of transactions in a market
is reduced. Because the tax discourages mutually beneficial transactions, there is
a(n)________ from a tax.
Answer quota rent
33. Multiple Choice: By law, FICA (the Federal Insurance C...
Question By law, FICA (the Federal Insurance Contributions Act), a payroll tax, is collected
equally from the employers and the employees. In reality:
Answer the law works—the employers and the employees each bear half of the burden
of the tax.
34. Multiple Choice: Reference: Ref 7-1 (Table: The Marke...
Question
Reference: Ref 7-1
(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.
Answer $1.20; 8,000
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35. Multiple Choice: Reference: Ref 7-1 (Table: The Marke...
Question
Reference: Ref 7-1
(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 ________.
Answer $0.30; $0.00
36. Multiple Choice: Reference: Ref 7-1 (Table: The Marke...
Question
Reference: Ref 7-1
(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.
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37. Multiple Choice: Reference: Ref 7-1 (Table: Market fo...
Question
Reference: Ref 7-1
(Table: 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:
38. Multiple Choice: Figure and Table: The Market for Taxi...
Question
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Figure and Table: The Market for Taxi Rides
Reference: Ref 7-2
(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, there will be a deadweight loss to
society of ________ caused by this tax.
39. Multiple Choice: Figure and Table: The Market for Taxi...
Question
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Figure and Table: The Market for Taxi Rides
Reference: Ref 7-2
(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 there will be a deadweight loss to society of ________ caused by
this tax.
40. Multiple Choice: Figure and Table: The Market for Taxi...
Question
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Figure and Table: The Market for Taxi Rides
Reference: Ref 7-2
(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.
41. Multiple Choice: Figure: The Market for Lattes Referen...
Question
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Figure: The Market for Lattes
Reference: Ref 7-3
(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:
42. Multiple Choice: Figure: The Market for Lattes Referen...
Question
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Figure: The Market for Lattes
Reference: Ref 7-3
(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:
43. Multiple Choice: Suppose the price elasticity of deman...
Question 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?
44. Multiple Choice: Figure: An Excise Tax Reference: Ref ...
Question
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Figure: An Excise Tax
Reference: Ref 7-4
(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:
Answer rise by $1.10.
45. Multiple Choice: The burden of a tax that is imposed o...
Question The burden of a tax that is imposed on a good is said to fall completely on the
consumers if the:
Answer price paid by consumers for the good declines by the amount of the tax.
46. Multiple Choice: The burden of a tax that is imposed o...
Question The burden of a tax that is imposed on a good is said to fall completely on the
producers if the:
Answer price paid by consumers for the good declines by the amount of the tax.
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47. Multiple Choice: Figure: The Market for Productivity A...
Question Figure: The Market for Productivity Apps
Reference: Ref 7-5
(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.
48. Multiple Choice: Figure: The Market for Productivity A...
Question
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Figure: The Market for Productivity Apps
Reference: Ref 7-5
(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.
49. Multiple Choice: If an excise tax is imposed on wine a...
Question If an excise tax is imposed on wine and collected from the consumers, the
________ curve will shift ________ by the amount of the tax.
Answer demand; upward
50. Multiple Choice: If an excise tax is imposed on beer a...
Question If an excise tax is imposed on beer and collected from the producers, the
________ curve will shift ________ by the amount of the tax.
Answer demand; upward
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51. Multiple Choice: Assuming a normal upward-sloping supp...
Question 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:
Answer increase by $5.
52. Multiple Choice: If the government imposes a $5 excise...
Question If the government imposes a $5 excise tax on leather shoes and the price of leather
shoes increases by $2:
Answer the government will receive less tax revenue than anticipated.
53. Multiple Choice: If the government imposes a $5 excise...
Question If the government imposes a $5 excise tax on leather shoes and the price of leather
shoes does not change:
Answer the government will receive less tax revenue than anticipated.
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54. Multiple Choice: State governments place excise taxes ...
Question State governments place excise taxes on alcohol because:
Answer they want to subsidize alcohol production.
55. Multiple Choice: Tax incidence refers to:
Question Tax incidence refers to:
Answer who writes the check to the government.
56. Multiple Choice: Figure: The Market for Yachts Referen...
Question
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Figure: The Market for Yachts
Reference: Ref 7-6
(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 yacht
consumers, the ________ curve will shift ________ by ________.
Answer supply; upward; $30,000
57. Multiple Choice: Figure: The Market for Yachts Referen...
Question
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