Economics Chapter 7 Twinkies The Government Decides Tax Fried Twinkies

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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.

Points: 0

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.

Points: 0

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:

Points: 0

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.

Points: 0

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

Points: 0

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.

Points: 0

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

Points: 0

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

Points: 0

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

Points: 0

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

Points: 0

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

Points: 0

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

Points: 0

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.

Points: 0

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

Points: 0

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

Points: 0

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.

Points: 0

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

Points: 0

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

Points: 0