Question 1

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1) . If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15, we can conclude that the

Accepted Answer

A)  supply of X is inelastic.
B)  demand for X is unitary elastic.
C)  demand for X is elastic.
D)  demand for X is inelastic.

Question 2

In which of the given market situations will the burden of a tax be borne more or less equally between buyers and sellers?

Accepted Answer

A)  2 and 4
B)  1 and 3
C)  all of these situations
D)  1

Question 3

The average tax rate is

Accepted Answer

A)  equal to the change in taxes/change in taxable income.
B)  equal to total taxes/total taxable income.
C)  the sum of the marginal tax rate and the rate of transfer payments.
D)  the tax on incremental income less the tax on total income.

Question 4

The supply of meat is more elastic in the long run than in the short run. Ceteris paribus, as time goes by, the burden of a tax on cattle will increasingly be shouldered by the

Accepted Answer

A)  grocer.
B)  government.
C)  rancher.
D)  consumer.

Question 5

Joe complains that 32 percent of his income last year went to taxes. He is referring to his

Accepted Answer

A)  average tax rate.
B)  marginal tax rate.
C)  proportional tax rate.
D)  progressive tax rate.

Question 6

Assume that in year 1 your average tax rate is 10 percent on a taxable income of $10,000. If the marginal tax rate on the next $10,000 of taxable income is 15 percent, what will be the average tax rate if your taxable income rises to $20,000?

Accepted Answer

A)  25 percent.
B)  15 percent.
C)  12.5 percent.
D)  about 14 percent.

Question 7

With a tax of $2,000 on $30,000 of income and $2,000 on $70,000 of income, we can describe the structure of this tax as

Accepted Answer

A)  progressive.
B)  proportional.
C)  regressive.
D)  marginal.

Question 8

In which of the given market situations will the largest portion of an excise tax of a specified amount per unit of output be borne by buyers?

Accepted Answer

A)  4
B)  3
C)  1
D)  2

Question 9

Which of the following statements about specific excise taxes is true?

Accepted Answer

A)  These taxes are levied on a wide range of consumer goods.
B)  These taxes are usually transparent to (and easily reckoned by) the buyers.
C)  A large portion of these taxes are often borne by the sellers, not shifted to the buyers.
D)  In the U.S., these taxes are more common than sales taxes.

Question 10

Which is the most important source of tax revenue for local governments?

Accepted Answer

A)  property taxes
B)  corporate income taxes
C)  sales and excise taxes
D)  personal income taxes

Question 11

The federal payroll (Social Security) tax

Accepted Answer

A)  increases the progressivity of the federal tax system.
B)  offsets some of the progressivity of the federal tax system.
C)  offsets some of the regressivity of the federal tax system.
D)  decreases the proportionality of the federal tax system.

Question 12

The tax rates embodied in the federal personal income tax are such that

Accepted Answer

A)  a rising absolute amount, but a declining proportion, of income is paid in taxes.
B)  the marginal and average tax rates are equal, making the tax progressive.
C)  the average tax rate rises more rapidly than does the marginal tax rate as income rises.
D)  the marginal tax rate is higher than the average tax rate, causing the average tax rate to rise as income rises.

Question 13

The graph represents the market for a product where D ₁ and S ₁ show the initial supply and demand curves, and supply shifts to S ₂ due to a sales tax. The government's tax revenue is represented by area

Accepted Answer

A)  FIJG.
B)  ACEG.
C)  BCEF.
D)  ABFG.

Question 14

What are the problems encountered in a strict application of the ability-to-pay principle of taxation?

Accepted Answer

The ability-to-pay principle asserts tha...

Question 15

Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1) . If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $0.25, we can conclude that the

Accepted Answer

A)  supply of X is inelastic.
B)  supply of X is elastic.
C)  supply of X is unitary elastic.
D)  demand for X is elastic.

Question 17

Refer to the income tax schedule given in the table. If your taxable income is $4,000, your average tax rate will be

Accepted Answer

A)  5 percent.
B)  10 percent.
C)  30 percent.
D)  15 percent.

Question 18

Which of the following statements about state lotteries is false?

Accepted Answer

A)  State lotteries are monopolies, with competing private lotteries banned.
B)  State lotteries are highly controversial, with critics and defenders still debating their merits.
C)  Fewer than half of the states in the U.S. have state lotteries because of their controversial nature.
D)  The payout rates of state lotteries are substantially lower than in private betting operations like casinos.

Question 19

If the tax on gasoline is increased, gas stations are most likely to pass most of this increase to the consumer if the demand is

Accepted Answer

A)  unitary elastic.
B)  very inelastic.
C)  slightly elastic.
D)  perfectly elastic.

Question 20

Refer to the graph. Assume the market for this product is in equilibrium at the intersection of D ₂ and S ₁. The shift in supply from S ₁ to S ₂ is due to an excise tax imposed on the product. The incidence of the tax is

Accepted Answer

A)  $1 from the buyers and $3 from the sellers.
B)  $3 from the buyers and $3 from the sellers.
C)  $1 from the buyers and $1 from the sellers.
D)  $4 from the buyers and $0 from the sellers.

Exam 20: Public Finance: Expenditures and Taxes

Which of the following statements about state lotteries is false?

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Sales taxes on consumer goods are regressive because poor people consume a larger proportion of their incomes than do rich people.

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The average tax rate is

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In which of the given market situations will the burden of a tax be borne more or less equally between buyers and sellers?

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In which of the given market situations will the largest portion of an excise tax of a specified amount per unit of output be borne by buyers?

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The federal payroll (Social Security) tax

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Which of the following statements about specific excise taxes is true?

Correct AnswerverifiedShow Answer

Refer to the graph. Assume the market for this product is in equilibrium at the intersection of D ₂ and S ₁. The shift in supply from S ₁ to S ₂ is due to an excise tax imposed on the product. The incidence of the tax is

Correct AnswerverifiedShow Answer

Assume that in year 1 your average tax rate is 10 percent on a taxable income of $10,000. If the marginal tax rate on the next $10,000 of taxable income is 15 percent, what will be the average tax rate if your taxable income rises to $20,000?

Correct AnswerverifiedShow Answer

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1) . If the incidence of the tax is such that the consumers of X pay $1.85 of the tax and the producers pay $0.15, we can conclude that the

Correct AnswerverifiedShow Answer

The graph represents the market for a product where D ₁ and S ₁ show the initial supply and demand curves, and supply shifts to S ₂ due to a sales tax. The government's tax revenue is represented by area

Correct AnswerverifiedShow Answer

Joe complains that 32 percent of his income last year went to taxes. He is referring to his

Correct AnswerverifiedShow Answer

Which is the most important source of tax revenue for local governments?

Correct AnswerverifiedShow Answer

Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1) . If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $0.25, we can conclude that the

Correct AnswerverifiedShow Answer

The tax rates embodied in the federal personal income tax are such that

Correct AnswerverifiedShow Answer

Refer to the income tax schedule given in the table. If your taxable income is $4,000, your average tax rate will be

Correct AnswerverifiedShow Answer

What are the problems encountered in a strict application of the ability-to-pay principle of taxation?

Correct AnswerverifiedThe ability-to-pay principle asserts tha...View AnswerShow Answer

With a tax of $2,000 on $30,000 of income and $2,000 on $70,000 of income, we can describe the structure of this tax as

Correct AnswerverifiedShow Answer

If the tax on gasoline is increased, gas stations are most likely to pass most of this increase to the consumer if the demand is

Correct AnswerverifiedShow Answer

The supply of meat is more elastic in the long run than in the short run. Ceteris paribus, as time goes by, the burden of a tax on cattle will increasingly be shouldered by the

Correct AnswerverifiedShow Answer

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The ability-to-pay principle asserts tha...
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