Test Bank For Microeconomics Fifth Edition

Test Bank for Microeconomics Fifth Edition
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Multiple Choice 0 points
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:
Answer lower the profits of ice cream suppliers.
decrease revenue for the government.
decrease black market activity.
raise the profits of ice cream suppliers.
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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:
Answer the price of sweaters will increase by $10.
consumers of sweaters will bear the entire burden of the tax.
the price of sweaters will increase but by less than $10.
the price of sweaters will decrease by $10.
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Question
An excise tax that the government collects from the producers of a good:
Answer shifts the supply curve upward.
causes a loss of revenue for the government.
has a similar effect as a tax subsidy.
shifts the supply curve downward.
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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:
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Answer that consumers would pay a higher price and producers would sell fewer of these
CDs and CD players than before the tax.
no effect on the consumption or the prices paid by consumers of these CDs and
CD players.
that consumers would pay a lower price and producers would receive a higher
price for these CDs and CD players than before the tax.
an increase in economic activity due to the tax.
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Question
If an excise tax is imposed on automobiles and collected from consumers,
Answer the demand curve will shift downward by the amount of the tax.
the supply curve will shift upward by the amount of the tax.
the equilibrium quantity supplied will increase relative to the pre-tax level.
the equilibrium quantity demanded will increase relative to the pre-tax level.
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Question
The incidence of a tax:
Answer is a measure of the revenue the government receives from the tax.
refers to who writes the check to the government.
refers to how much of the tax is actually paid by consumers and producers.
is a measure of the deadweight loss from the tax.
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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
deadweight loss
increased consumer surplus
increased producer surplus
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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.
the employees bear almost all of the burden of the tax.
the employers bear almost all of the burden of the tax.
it's impossible to determine who bears the burden of the tax.
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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
$1.30; 7,000
$1.40; 6,000
$1.50; 5,000
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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
$0.15; $0.15
$0.20; $0.10
$0.00; $0.30
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Question
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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.
Answer $1.10; 3,000
$1.20; 5,000
$1.30; 7,000
$1.50; 5,000
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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:
Answer $500.
$1,000.
$1,500.
The total is impossible to calculate.
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Question
Figure and Table: The Market for Taxi Rides
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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.
Answer $9 million; $0.5 million
$16 million; $1 million
$50 million; $0.5 million
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Question
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Reference: Ref 7-2
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.
Answer $8 million; $1 million
$24 million; $4.5 million
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Question
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Reference: Ref 7-2
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.
Answer $1
$0.50
$0.25
$0.00
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Question
Figure: The Market for Lattes
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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:
Answer increase from $2 to $2.75.
increase from $2 to $2.50.
increase from $2 to $2.25.
change, but we cannot determine by how much.
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Question
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:
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Answer decrease from $2 to $1.75.

decrease from $2 to $1.50.
decrease from $2 to $1.25.
change, but we cannot determine by how much.
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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?
Answer Yacht builders will pay more.
Yacht buyers will pay more.
Yacht builders and buyers will pay equally.
It's impossible to tell without additional information.
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Question
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.
rise by $1.33.
not rise.
rise by $0.50.
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Question
The burden of a tax that is imposed on a good is said to fall completely on the consumers if
the:
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Answer price paid by consumers for the good declines by the amount of the tax.
price paid by consumers for the good increases by the amount of the tax.
price paid by consumers does not change.
wages received by workers who produce the good increase by the amount of the
tax.
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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.
price paid by consumers for the good increases by the amount of the tax.
price paid by consumers does not change.
wages received by workers who produce the good increase by the amount of the
tax.
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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.
Answer $1; 5
$1; 25
$0.50; 5
$0.50; 20
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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, producers will receive ________ less
per app and sell ________ fewer apps.
Answer $1; 5
$1; 25
$0.50; 5
$0.50; 20
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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
demand; downward
supply; upward
supply; downward
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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
demand; downward
supply; upward
supply; downward
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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.
increase by more than $5.
increase by less than $5.
increase, but we cannot determine by how much.
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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.
consumers are paying more of the tax than the producers.
producers are paying more of the tax than are the consumers.
the quantity of shoes sold will increase.
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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.
consumers are paying all of the tax.
producers are paying all of the tax.
consumers and producers are paying equal amounts of the tax.
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Question
State governments place excise taxes on alcohol because:
Answer they want to subsidize alcohol production.
they want to encourage individuals to produce their own alcohol.
it discourages drinking alcohol while raising revenue for the government.
it is politically popular with religious groups.
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Question
Tax incidence refers to:
Answer who writes the check to the government.
who really pays the tax.
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the deadweight loss from the tax.

the total revenue that the government collects from the tax.
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Question
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
supply; upward; $60,000
demand; downward; $30,000
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Question
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Reference: Ref 7-6
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A quota of ________
will bring about the same price and output in the market for yachts as would an excise tax of
$30,000.
Answer 2,000
3,000
4,000
The answer is impossible to determine.
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Question
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Reference: Ref 7-6
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A price ________ of
________ will bring about the same price and output in the market for yachts as would an
excise tax of $30,000.
Answer ceiling; $80,000
ceiling; $100,000
floor; $120,000
floor; $140,000
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Question
Reference: Ref 7-6
imposes a $60,000 tax on yachts (collected from the producers), consumers will pay
________ of the tax and producers will pay ________.
Answer $30,000; $30,000
$40,000; $20,000
$20,000; $40,000
$10,000; $50,000
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Question
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Reference: Ref 7-6
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A quota of ________
will bring about the same price and output in the market for yachts as would an excise tax of
$60,000.
Answer 2,000
3,000
4,000
The answer is impossible to determine.
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Question
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Reference: Ref 7-6
(Figure: The Market for Yachts) Look at the figure The Market for Yachts. A price ________ of
________ will bring the about the same price and output in the market for yachts as would an
excise tax of $60,000.
Answer ceiling; $80,000
ceiling; $100,000
floor; $100,000
floor; $160,000
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Question
Reference: Ref 7-6
imposes a $30,000 tax on yachts and collects it from the yacht suppliers, the ________ curve
will shift ________ by ________.
Answer demand; downward; $15,000
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Question
An excise tax is a tax charged on:
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Answer each unit of a good or service that is sold.

earnings.
the ownership of real estate.
the inheritance of assets.
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Question
Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1 tax is levied on
each gallon of gas. As a result, the price of gasoline rises to $3.75 per gallon. The incidence
of the $1 tax is:
Answer $0.25 paid by consumers, $0.75 paid by producers.
$0.50 paid by consumers, $0.50 paid by producers.
$1.00 paid by producers, $0 paid by consumers.
$0.75 paid by consumers, $0.25 paid by producers.
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Question
Which of the following is an example of an excise tax?
Answer a tax of $0.41 per gallon of gas
a tax of 12.4% of your wages
a tax on the value of your property
a one-time local government tax of $50
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Question
If an excise tax is levied on suppliers, then the incidence of the tax:
Answer is typically on the consumer more than the producer.
is typically on the producer more than the consumer.
is typically split equally between the producer and the consumer.
cannot be determined without more information.
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Question
Figure: Market for Hotel Rooms
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Reference: Ref 7-7
(Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms.
Suppose the equilibrium price is $110 and the equilibrium quantity is 250. If the local
government levies a tax of $30 per night on each hotel room rented, the new equilibrium price
will equal ________ and the new equilibrium quantity will equal ________.
Answer $140; 100
$130; 150
$120; 200
$110; 250
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Question
Taxes paid on the purchase of specific items such as gasoline, cigarettes, or alcoholic
beverages are called:
Answer personal income taxes.
excise taxes.
property taxes.
sales taxes.
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Question
Determining who pays the burden of the tax is a question about:
Answer tax incidence.
externality analysis.
public interest theory.
public choice theory.
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Question
Tax incidence analysis seeks to determine:
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Answer who actually sends the tax payment to the government.

who actually pays the extra cost imposed by a tax.
who ultimately gets the tax revenue.
whether a tax is in the benefits-received category or the ability-to-pay category.
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Question
Determining who actually pays the extra cost imposed by a tax is the study of:
Answer public interest theory.
rational choice theory.
tax incidence.
budget analysis.
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Question
The burden of a tax imposed on a good falls at least partially on consumers if:
Answer the price paid by consumers for the good declines.
the price paid by consumers for the good increases.
the wages received by workers who produce the good decline.
the wages received by workers who produce the good increase.
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Question
State governments levy excise taxes on cigarettes because:
Answer they want to subsidize tobacco farming.
they want to discourage cigarette smuggling.
it is an easy way to raise tax revenue while discouraging smoking.
they want to reduce deadweight loss.
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Question
Suppose the government imposes a $4 per month excise tax on cable TV. If the demand for
cable TV is relatively inelastic and the supply curve is relatively elastic, then the price of cable
TV will:
Answer increase by more than $4.
increase by exactly $4.
remain constant.
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Question
Suppose the government imposes a $4 per month excise tax on cable TV. If the demand for
cable TV is perfectly inelastic and the supply curve is elastic, then the price of cable TV will:
Answer increase by more than $4.
increase by exactly $4.
remain constant.
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Question
If the demand curve is downward sloping and supply is perfectly elastic, then the burden of an
excise tax is:
Answer borne entirely by consumers.
borne entirely by producers.
shared by consumers and producers, with the burden falling mainly on
consumers.
producers.
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Question
If demand is perfectly inelastic and the supply curve is upward sloping, then the burden of an
excise tax is:
Answer borne entirely by consumers.
borne entirely by producers.
consumers.
producers.
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Question
As part of an antiobesity program, the government levies an excise tax on high-fat foods. We
would expect consumers to pay almost all of this tax if demand is:
Answer inelastic and supply is inelastic.
inelastic and supply is elastic.
elastic and supply is elastic.
elastic and supply is inelastic.
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Question
Economic analysis shows that workers pay ________ of the FICA.
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Answer exactly half

very little
most
none
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Question
Suppose the government imposes a $10 per month tax on cell phone service. If the demand
curve for cell phone service is perfectly inelastic and the supply curve is upward sloping, the
price that consumers each month pay for cell phone service will increase by:
Answer $5.
less than $10.
$10.
$0.
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Question
Suppose the government imposes a $9 per month tax on cell phone service. If the demand
curve for cell phone service is perfectly elastic and the supply curve is upward sloping, the
price that consumers pay each month for cell phone service will:
Answer increase by $4.50.
increase by more than $9.
increase by $9.
not change.
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Question
When a worker earns income, she and her employer pay equal portions of FICA (the Federal
Insurance Contributions Act). Which of the following statements is true?
Answer The worker and the employer each bear half of the burden (incidence) of the
tax.
The employer bears almost all of the burden (incidence) of the tax.
The worker bears almost all of the burden (incidence) of the tax
It's impossible to determine who bears the burden (incidence) of the tax.
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Question
The price elasticity of demand for a particular cancer drug is equal to zero and the price
elasticity of supply is equal to 0.50. If a $1 excise tax is levied on producers, how much of this
tax will eventually be paid by consumers?
Answer $0
$1
$0.50
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$1.50
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Question
The demand for food is very inelastic, so if a tax is levied on the consumers of food, the tax
incidence:
Answer is typically on consumers more than producers.
is typically on producers more than consumers.
is typically split equally between consumers and producers.
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Question
The elasticity of demand for Gala apples is relatively elastic, so if a tax is levied on the
consumers of Gala apples, the tax incidence:
Answer is typically on consumers more than producers.
is typically on producers more than consumers.
is typically split equally between consumers and producers.
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Question
Figure: The Shrimp Market
Reference: Ref 7-8
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government wants to
limit shrimp sales to 500 pounds, it can impose a ________ excise tax on sellers, and the total
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tax revenue generated will be ________.

Answer $5; $2,500
$7.50; $7,500
$10; $2,500
The answer cannot be determined from the information provided.
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Question
Figure: The Shrimp Market
Reference: Ref 7-8
(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government wants to
limit shrimp sales to 250 pounds, it can impose a ________ excise tax on sellers, and the total
tax revenue generated will be ________.
Answer $5; $2,500
$7.50; $7,500
$10; $2,500
The answer cannot be determined from the information provided.
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Question
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Reference: Ref 7-9
imposes a $60,000 tax on yachts (collected from the producers), the price of yachts will rise to
________ and the government will collect tax revenue equal to ________.
Answer $100,000; $120 million
$120,000; $90 million
$140,000; $90 million
$160,000; $120 million
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Question
A higher tax rate is more likely to increase tax revenue collected if the price elasticity of:
Answer demand and supply are both high.
demand and supply are both low.
demand is low, but the price elasticity of supply is high.
demand is high, but the price elasticity of supply is low.
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Question
The amount of tax levied per unit of good or service is called the:
Answer tax incidence.
tax rate.
tax revenue.
tax surplus.
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Question
A higher rate is most likely to decrease the amount of revenue that the government collects
from an excise tax if
Answer demand and supply are both very elastic.
demand is very elastic and supply is very inelastic.
demand is very inelastic and supply is very elastic.
demand and supply are both very inelastic.
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Question
If demand and supply are both very inelastic, a decrease in the rate of an excise tax will likely
Answer decrease government revenue.
increase government revenue.
not affect government revenue.
make demand and supply both elastic.
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Question
If demand and supply are both very elastic, a decrease in the rate of an excise tax will likely
Answer decrease government revenue.
increase government revenue.
not affect government revenue.
make demand and supply both inelastic.
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Question
In which of the following cases will an increase in the tax rate most likely decrease tax
revenue?
Answer The elasticity of demand is 3.3 and the elasticity of supply is 2.1.
The elasticity of demand is 3.3 and the elasticity of supply is 0.5.
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Question
In which of the following cases will an increase in the tax rate most likely increase tax revenue?
Answer The elasticity of demand is 3.3 and the elasticity of supply is 2.1.
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Question
If the United States removed all excise taxes on cigarettes, which of the following would not
occur?
Answer Producer surplus for U.S. cigarette producers would decrease.
Producer surplus for U.S. cigarettes would increase.
Consumer surplus for U.S. cigarette consumers would increase.
Total surplus in the U.S. cigarette market would increase.
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Question
When the government imposes an excise tax in a market:
Answer consumer surplus falls.
producer surplus falls.
a deadweight loss is created.
consumer surplus falls, producer surplus falls, and a deadweight loss is created.
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Question
If the government removed the excise tax on gasoline, which of the following would not occur?
Answer Consumer surplus would increase.
Producer surplus would increase.
Producer surplus would decrease.
Total surplus would increase.
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Question
The deadweight loss from an excise tax comes about because:
Answer the number of transactions in the market is reduced.
some mutually beneficial transactions do not take place.
a quota rent exists.
the number of transactions in the market is reduced and some mutually beneficial
transactions do not take place.
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Question
A tax leads to ________ in consumer surplus and ________ in producer surplus.
Answer an increase; an increase
an increase; a decrease
a decrease; an increase
a decrease; a decrease
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Question
The burden of a tax system comes from its:
Answer administrative costs.
effect on marginal incentives.
inequity.
government revenue.
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Question
Assume the same upward supply curve for each of the following goods. Considering demand
only, a tax on which of the following goods would result in the largest deadweight loss?
Answer gasoline
medicine
restaurant meals
tobacco
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Question
If the government decides to impose a $700 tax on U.S. citizens traveling abroad, then the
deadweight loss from this tax will be:
Answer relatively small.
relatively large.
zero.
absorbed by foreign governments.
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Question
The number of seats in a football stadium is fixed at 70,000. The city decides to impose a tax
of $10 per ticket. In response, the team management raises the ticket price from $30 to $40
and still sells all 70,000 tickets. The tax caused a change in the consumer surplus of
________, a change in the producer surplus of ________, and a deadweight loss of
________.
Answer –$10; $0; $10
–$700,000; $0; $700,000
–$10; $0; $0
–$700,000; $0; $0
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Question
Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be
those that are imposed on goods for which:
Answer demand is inelastic and supply is elastic.
demand and supply are both inelastic.
demand is elastic and supply is inelastic.
demand and supply are both elastic.
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Question
The governor wants to impose a $1 excise tax on some good—he doesn't care which—but he
does want to minimize the deadweight loss. The deadweight loss will be least when:
Answer both demand and supply curves are elastic.
the demand is elastic and supply is inelastic.
the demand is inelastic and supply is elastic.
both demand and supply are inelastic.
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Question
The 1990 “yacht tax” caused a large deadweight loss, because demand for luxury yachts
made in the United States is:
Answer very elastic.
very inelastic.
perfectly inelastic, since “rich” people will pay whatever is necessary.
perfectly elastic.
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Question
Which of the following statements about the effects of an excise tax is incorrect?
Answer The lower the elasticity of supply relative to the elasticity of demand, the lower the
burden of the tax borne by suppliers.
An excise tax causes a deadweight loss because consumer and producer
surpluses are reduced by more than the revenue the government collects.
An excise tax drives a wedge between the price paid by consumers and the price
received by producers.
An excise tax is inefficient because it distorts incentives at the margin for both
consumers and producers.
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Question
If the government wants to minimize the deadweight loss from taxes, it should impose taxes on
goods for which:
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Answer the price elasticity of demand is high.

the price elasticity of demand is low.
the price elasticity of supply is high.
the demand is high.
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Question
If the government imposes an excise tax in a market in which the demand curve is perfectly
inelastic, the burden of the tax will fall completely on the ________, and the deadweight loss
will equal ________.
Answer consumers; zero
producers; zero
consumers; the government's tax revenue
producers; the government's tax revenue
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Question
If the government imposes an excise tax in a market in which the supply curve is perfectly
inelastic, the burden of the tax will fall completely on the ________ and the deadweight loss
will equal ________.
Answer consumers; zero
producers; zero
consumers; the government's tax revenue
producers; the government's tax revenue
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Question
If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall on
goods for which the supply is ________ and the demand is ________.
Answer elastic; elastic
inelastic; inelastic
elastic; inelastic
inelastic; elastic
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Question
If the purpose of a tax is to decrease the amount of a harmful activity, such as underage
drinking, the government should impose it on harmful activities whose supply is ________ and
the demand is ________.
Answer elastic; elastic
elastic; inelastic
inelastic; elastic
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Question
Given any downward-sloping demand curve for a good, the more price-elastic the supply
curve, the ________ equilibrium output will fall and the ________ will be the deadweight loss
when the government imposes an excise tax.
Answer more; smaller
more; larger
less; smaller
less; larger
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Question
Given any downward-sloping demand curve for a good, the more inelastic the supply curve,
the ________ equilibrium output will fall and the ________ will be the deadweight loss when
the government imposes an excise tax.
more; larger
less; smaller
less; larger
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Question
Given any upward-sloping supply curve for a good, the more elastic the demand curve, the
________ equilibrium output will fall and the ________ will be the deadweight loss when the
government imposes an excise tax.
more; larger
less; smaller
less; larger
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Question
Given any upward-sloping supply curve for a good, the more inelastic the demand curve, the
________ equilibrium output will fall and the ________ will be the deadweight loss when the
government imposes an excise tax.
more; larger
less; smaller
less; larger
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Question
An analysis of the effect of excise taxes on markets allows us to conclude that:
Answer when the price elasticity of supply is equal to zero, an excise tax falls entirely on
the consumers.
when the price elasticity of demand is lower than the price elasticity of supply, an
excise tax falls mainly on the producers.
whether the tax is levied on consumers or producers, the post-tax quantity sold will
be the same.
when the price elasticity of demand is higher than the price elasticity of supply, an
excise tax falls mainly on the consumers.
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Question
The deadweight loss from an excise tax is largest if demand:
Answer is elastic and supply is inelastic.
is inelastic and supply is elastic.
and supply are both inelastic.
and supply are both elastic.
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Question
Suppose the demand for good X is perfectly inelastic and a tax is levied on the producers of
each unit. Which of the following is a result of this tax?
Answer Consumers pay the entire tax, and deadweight loss will occur because the
equilibrium quantity of good X falls.
Consumers pay the entire tax, and there is no deadweight loss because the
equilibrium quantity of good X remains constant.
Consumers and producers share the burden of the tax, and there is no
deadweight loss because the equilibrium quantity of good X remains constant.
Producers pay the entire tax, and deadweight loss will occur because the
equilibrium quantity of good X falls.
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Question
To minimize deadweight loss, markets where demand is relatively ________ and supply is
relatively ________ should be taxed.
Answer elastic; inelastic
elastic; elastic
inelastic; elastic
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Question
If demand is inelastic, then deadweight loss will:
Answer be minimized if supply is also inelastic.
be maximized if supply is also inelastic.
decrease if demand becomes more elastic.
increase if supply becomes more inelastic.
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Question
Figure: The Market for Hamburgers
Reference: Ref 7-10
(Figure: The Market for Hamburgers) Look at the figure The Market for Hamburgers. If the
market is originally in equilibrium and the government imposes an excise tax of $0.80 per unit
of the good sold, consumer surplus will be reduced by:
Answer $175.
$240.
$105.
$90.
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33 of 98 5/26/2013 11:04 PM
Reference: Ref 7-10
market is originally in equilibrium and the government imposes an excise tax of $0.80 per
hamburger, producer surplus will be reduced by:
Answer $175.
$240.
$105.
$90.
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Question
Reference: Ref 7-10
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of the good sold, the deadweight loss associated with the tax will be:
Answer $40.
$240.
$105.
$90.
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Question
Reference: Ref 7-10
of the good sold, the government's revenue from the tax will be:
Answer $175.
$240.
$105.
$90.
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Question
When the government imposes an excise tax in the market, the resulting deadweight loss will:
Answer equal the tax revenue paid to the government.
be greater than the tax revenue paid to the government.
be less than the tax revenue paid to the government.
represent the inefficiency from transactions that do not occur as a result of the tax.
35 of 98 5/26/2013 11:04 PM
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Question
Figure: The Market for Music Downloads
Reference: Ref 7-11
(Figure: The Market for Music Downloads) Look at the graph The Market for Music Downloads.
If the government imposes a tax of $3 in this market, the government will receive tax revenue
of:
Answer $20.
$30.
$60.
$75.
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Question
Figure: The Market for Music Downloads
36 of 98 5/26/2013 11:04 PM
Reference: Ref 7-11
(Figure: The Market for Music Downloads) Look at the graph The Market for Music Downloads.
If the government imposes a tax of $3 in this market, the deadweight loss will equal:
Answer $0.
$22.50.
$26.25.
$52.50.
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Question
Reference: Ref 7-12
imposes a $30,000 tax on yachts (collected from the producers), the price of yachts will rise to
________ and the government will collect tax revenue equal to ________.
Answer $100,000; $120 million
$120,000; $90 million
$140,000; $90 million
$160,000; $120 million
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37 of 98 5/26/2013 11:04 PM
Reference: Ref 7-12
imposes a $30,000 tax on yachts (collected from the producers), consumers will pay
________ of the tax and producers will pay ________.
Answer $20,000; $10,000
$15,000; $15,000
$10,000; $20,000
$5,000; $25,000
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Question
A tax:
Answer generates tax revenue and creates deadweight loss.
increases consumer and producer surplus.
produces revenue for the government and increases total surplus.
is always efficient.
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Question
Figure: The Market for Blue Jeans
38 of 98 5/26/2013 11:04 PM
Reference: Ref 7-13
(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The
government recently levied a $10 tax on the producers of blue jeans. What area or areas in the
graph identify tax revenue?
Answer a+b+c
b+d
c+e
d+e+f
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Question
Reference: Ref 7-13
graph identify consumer and producer surplus after the tax was levied?
Answer a+b+c
a+b+c +d+e+f
d+e+f
a+f
39 of 98 5/26/2013 11:04 PM
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Question
Reference: Ref 7-13
graph identify deadweight loss?
Answer a+b+c
b+d
c+e
d+e+f
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Question
Reference: Ref 7-13
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graph identify the loss of consumer surplus due to the tax?
Answer c
b+c
b
a+b+c
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Question
Reference: Ref 7-13
graph identify the loss of producer surplus due to the tax?
Answer d+e
e
d
d+e+f
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Question
41 of 98 5/26/2013 11:04 PM
Reference: Ref 7-13
government recently levied a $10 tax on the producers of blue jeans. What is the deadweight
loss?
Answer $1,000
$500
$250
$1,250
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Question
Reference: Ref 7-13
government recently levied a $10 tax on the producers of blue jeans. What is the the tax
revenue?
Answer $1,000
$500
$4,000
$5,000
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Question
The two principles of tax fairness are:
Answer the minimize-distortions principle and the maximize-revenue principle.
the benefits principle and the ability-to-pay principle.
the proportional-tax principle and the ability-to-pay principle.
the equity principle and the efficiency principle.
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Question
The ability-to-pay principle says that:
Answer the amount of tax paid depends on the measure of value.
those who benefit from public spending should bear the burden of the tax that
pays for that spending.
those with greater ability to pay should pay more tax.
those who benefit from the tax should pay the same percentage of the tax base
as those who do not benefit.
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A lump-sum tax, such as the fee for a driver's license, does not take into consideration:
Answer efficiency.
the benefits principle.
the ability-to-pay principle.
the tax base.
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Question
Which of the following situations provides an example of the benefits principle?
Answer Employed workers pay taxes that are used to fund technical training programs.
Revenue from the federal tax on gasoline is used to maintain and improve the
interstate highway system.
Most of the revenue from property taxes is used to fund public schools. The taxes
are paid by all homeowners.
Taxes on cigarettes are used to pay state employees' salaries.
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The benefits principle says that:
43 of 98 5/26/2013 11:04 PM
Answer the amount of tax paid depends on the measure of value.

those who benefit from public spending should bear the burden of the tax that
pays for that spending.
those with greater ability to pay should pay more tax.
those who benefit from the tax should pay the same percentage of the tax base
as those who do not benefit.
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Question
Which of the following taxes reflects the ability-to-pay principle?
Answer the federal income tax
the payroll tax
a sales tax on food
Social Security tax
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Question
Criteria that economists use in selecting a tax system include:
Answer the ability to pay.
employment status.
consumer debt.
the maximal dead weight loss.
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Question
The ________ principle implies that people with ________ should pay more taxes.
Answer ability-to-pay; greater benefits received
benefits; higher incomes
ability-to-pay; higher incomes
benefits; fewer benefits
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Question
A principle suggesting that people with more income or wealth should pay more taxes is the:
Answer ability-to-pay principle.
regressive tax principle.
progressive tax principle.
benefits principle.
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Question
According to the benefits principle, which of the following is the best example of taxation?
Answer income tax
sales tax
gift tax
gasoline tax
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Question
Paying a fee every time you use the municipal golf course is an example of the:
Answer benefits principle.
ability-to-pay principle.
regressive tax principle.
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Question
Taxation according to the ability-to-pay principle is best illustrated in the United States by:
Answer sales taxes.
income taxes.
excise taxes.
user fees.
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Question
Since the terrorist attacks of September 11, 2001, the FAA has added a small security fee to
every airplane ticket purchased. This is an example of:
Answer the benefits principle of tax fairness.
a lump-sum tax.
the ability-to-pay principle of tax fairness.
a profits tax.
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Question
According to the ________, those who benefit from public spending should bear the burden
of the tax that pays for the spending.
Answer ability-to-pay principle
tax fairness principle
benefits principle
spending principle
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45 of 98 5/26/2013 11:04 PM
Question
According to the ________, those with greater ability to pay a tax should pay more tax.
Answer ability-to-pay principle
tax fairness principle
benefits principle
affordability principle
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Question
Which of the following taxes best illustrates the benefits principle of tax fairness?
Answer The local city playground is funded through a tax on all citizens.
Roads and highways are built and maintained through revenue from a tax on
gasoline.
A property tax that is proportional to the value of the home is charged to
homeowners to fund K–12 education.
A sales tax on food pays for police and fire protection.
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Question
Which of the following taxes best illustrates the ability-to-pay principle of tax fairness?
Answer The local city playground is funded through a tax on all citizens.
Roads and highways are built and maintained through revenue from a tax on
gasoline.
A property tax that is proportional to the value of the home is charged to
homeowners to fund K–12 education.
A sales tax on food pays for police and fire protection.
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Question
A principle suggesting that people with more income or wealth should pay more taxes is the:
Answer ability-to-pay principle.
proportional tax principle.
lump-sum tax principle.
benefits received principle.
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Question
Taxation according to the ability-to-pay principle is best illustrated in the United States by:
Answer sales taxes.
personal income taxes.
46 of 98 5/26/2013 11:04 PM
excise taxes.
gasoline taxes.
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Taxation according to the benefits-received principle is best illustrated by:
Answer income tax.
sales tax.
gift tax.
gasoline tax.
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Question
You have to pay a fee every time you use your community swimming pool. This is an example
of the:
Answer regressive tax principle.
benefits principle.
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Question
If tax efficiency is the only goal, a tax system should be designed to minimize its:
Answer burden.
administrative costs.
impact on the poor.
burden and its administrative costs.
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Question
A tax system achieves equity when:
Answer the “right” people actually bear the burden of taxes.
it minimizes the costs to the economy of tax collection.
taxes are efficient.
taxes are lump sum.
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A tax system achieves efficiency when:
47 of 98 5/26/2013 11:04 PM
Answer the “right” people actually bear the burden of taxes.

it minimizes the costs to the economy of tax collection.
the tax is fair.
it is in equilibrium.
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Question
If a tax system is poorly designed, it may be possible to increase:
Answer efficiency without sacrificing equity.
equity while causing inefficiency.
efficiency by sacrificing equity.
equity without causing inefficiency or increase efficiency without sacrificing equity.
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Question
Suppose Congress passed a new tax system, such that all federal, state, and local taxes were
replaced with one tax: a tax of $14,000 for every person 18 and over. This new tax system
would clearly improve:
Answer tax equity.
tax fairness.
tax efficiency.
government revenue.
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Question
A tax system ________ when it minimizes the direct and indirect costs to the economy of tax
collection.
Answer is efficient
is equitable
has no deadweight loss
is in equilibrium
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Question
A tax system ________ when the “right people actually bear the burden of taxes.”
Answer is efficient
is equitable
has no deadweight loss
is in equilibrium
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Question
If a tax system is designed to minimize the sum of its deadweight loss and its administrative
cost, then:
Answer maximizing efficiency is its principal goal.
maximizing equity is its principal goal.
maximizing tax revenue is its principal goal.
minimizing the tax burden is its principal goal.
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Question
Which of the following does not distort incentives and is best at promoting economic
efficiency?
Answer a lump-sum tax
a payroll tax
a property tax
an income tax
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Question
If a tax system is well designed, it must be true that:
Answer it maximizes efficiency.
it maximizes fairness.
efficiency can be improved only by making the system less fair.
it maximizes efficiency and equity.
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Question
Which of the following statements in correct?
Answer If the government can make the tax system fairer without additional inefficiency, it
should do so in order to maximize efficiency.
If the government can make the tax system fairer without additional inefficiency,
then the existing tax system is perfectly designed.
There is no trade-off between equity and efficiency in the tax system.
If the government can make the tax system fairer without additional inefficiency, it
should seek to maximize equity at the expense of efficiency.
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Question
The richest 20% of families in the United States pay a much ________ share of total income
taxes collected and a ________ share of total payroll taxes than their share of total income.
Answer higher; lower
lower; higher
higher; higher
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lower; lower
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Question
The poorest 20% of families in the United States pay a ________ share of their total income in
taxes.
Answer very large
somewhat large
small
negative
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Question
Figure: Income Tax Payments
Reference: Ref 7-14
(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel or
panels best represent the effects of a progressive income tax?
Answer A
B
C
A and B
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Question
Reference: Ref 7-14
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(Figure: Income Tax Payments) Look at the figure Income Tax Payments. Which panel or
panels best represent the effects of a proportional income tax?
Answer A
B
C
A and B
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Question
Reference: Ref 7-14
(Figure: Income Tax Payments)Look at the figure Income Tax Payments. Which panel or
panels best represent the effects of a regressive income tax?
Answer A
B
C
A and B
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Question
Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each
year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer
that the tax system is:
Answer progressive.
regressive.
proportional.
equitable.
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Question
Suppose a government imposes an income tax that taxes 0% of the first $1,000, 10% of the
next $10,000, and 20% of the remainder of earnings. This type of tax can be described as:
Answer progressive.
proportional.
regressive.
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equitable.
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Question
Suppose an income tax is levied on 0% of the first $1,000, 10% of the next $9,000, and 20%
of the remainder of earnings. How much tax would Miranda have to pay if she earned $20,000?
Answer $2,900
$5,000
$4,900
$3,000
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Question
A tax that takes a larger share of the income of high-income taxpayers than of low-income
taxpayers is called a:
Answer sales tax.
regressive tax.
progressive tax.
flat tax.
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Question
A tax that rises less than in proportion to income is described as:
Answer progressive.
proportional.
regressive.
structural.
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Question
A progressive tax:
Answer takes a larger share of the income of high-income taxpayers than of low-income
taxpayers.
takes a smaller share of the income of high-income taxpayers than of low-income
taxpayers.
takes the same share of the income of high-income taxpayers as it does of
low-income taxpayers.
has no deadweight loss.
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Question
Suppose Governor Meridias decides to initiate a state-level income tax. The first $50,000 of
household income is tax-free, while any income above $50,000 is taxed at 10%. A household
earning $50,000 has a marginal tax rate of ________ and an average tax rate of ________.
Answer 10%; 10%
10%; 0%
0%; 0%
0%; 10%
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Question
Suppose Governor Meridias decides to initiate a state-level income tax. The first $50,000 of
household income is tax-free, while any income above $50,000 is taxed at 10%. The marginal
tax rate for a household earning $75,000 is:
Answer greater than its average tax rate.
less than its average tax rate.
equal to its average tax rate.
3.3%.
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Question
If the government follows an income tax system in which personal income up to and including
$25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over
$50,000 is taxed at 25%, a family earning $60,000 of income will pay ________ in personal
taxes.
Answer $5,000
$8,000
$11,250
$16,000
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Question
Paying a tax of $20 on an income of $100, a tax of $15 on an income of $200, and a tax of
$12 on an income of $300 is an example of a:
Answer flat tax.
proportional tax.
progressive tax.
regressive tax.
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Question
A tax that takes a fixed percentage of income, regardless of the level of income, is a:
53 of 98 5/26/2013 11:04 PM
Answer proportional tax.

benefits tax.
progressive tax.
regressive tax.
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Question
Answer regressive tax.
proportional tax.
progressive tax.
benefits tax.
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Question
A tax that takes a higher percentage of income as income rises is:
Answer proportional.
an ability tax.
progressive.
regressive.
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Question
Answer progressive tax.
proportional tax.
regressive tax.
flat tax.
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Question
A tax that takes a ________ percentage of income as income ________ is a ________ tax.
Answer lower; rises; progressive
lower; rises; regressive
higher; rises; proportional
higher; falls; proportional
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Question
A progressive tax is one levied on:
Answer a fixed percentage of income.
a lower percentage of income as income rises.
a higher percentage of income as income rises.
a higher percentage of income as income falls.
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Question
Taxes paid on the wages received from a job are called:
Answer income tax.
profits tax.
property tax.
sales tax.
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Question
Annual taxes paid on the value of a home are called:
Answer income tax.
profits tax.
sales tax.
property tax.
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Question
Taxes paid on the purchase of most consumption goods are called:
Answer income tax.
property tax.
sales tax.
wealth tax.
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Question
The government imposes a tax of $1,000 per household to fund a new public swimming pool.
This tax is an example of a:
Answer regressive tax.
proportional tax.
progressive tax.
flat tax.
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Question
Paying a tax of $15 on an income of $200, a tax of $10 on an income of $300, and a tax of $8
on an income of $400 is an example of a:
Answer constant-rate tax.
proportional tax.
progressive tax.
regressive tax.
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Question
A tax that takes a _______ is ________.
Answer fixed percentage of income regardless of the taxpayer's level of income;
proportional
fixed percentage of income regardless of the taxpayer's level of income; a
benefits tax
a smaller share of the income of high-income taxpayers than of low-income
taxpayers; progressive
larger share of the income of high-income taxpayers than of low-income
taxpayers; regressive
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Question
$50 on an income of $500 is an example of:
Answer a regressive tax.
a proportional tax.
a progressive tax.
an inverse tax.
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Question
A tax that takes a _______ percentage of income as income rises is _______.
Answer higher; proportional
lower; an ability tax
higher; progressive
lower; a marginal tax
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Question
56 of 98 5/26/2013 11:04 PM
Answer progressive tax.

proportional tax.
regressive tax.
constant-rate tax.
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Question
Which of the following best describes a regressive tax?
Answer A tax that takes a higher percentage of income as income rises.
A tax whose rate rises less than in proportion to income.
A tax that takes a fixed percentage of income regardless of the taxpayer's level of
income.
A tax that takes a larger share of the income of high-income taxpayers than of
low-income taxpayers.
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Question
A regressive tax is one that takes a:
Answer fixed percentage of income.
lower percentage of income as income rises.
higher percentage of income as income rises.
lower percentage of income as income falls.
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Question
In analyzing the impact of a progressive tax system, economists focus on the ________ tax
rate.
Answer average
opportunity
total
marginal
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Question
The percentage of an increase in a taxpayer's income that is taxed away is the:
Answer marginal tax rate.
average tax rate.
total tax rate.
lower tax rate.
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Question
If the marginal tax rate is greater than the average tax rate, we know that the tax system is:
progressive.
degressive.
regressive.
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Question
If the marginal tax rate is less than the average tax rate, we know that the tax system is:
progressive.
degressive.
regressive.
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Question
If the marginal tax rate equals the average tax rate, we know that the tax system is:
progressive.
degressive.
regressive.
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Question
In 2008, the Social Security tax was levied on incomes only up to $102,000. Which of the
following statements about this tax is correct?
Answer A worker with an annual income of $50,000 and one with an annual income of
$100,000 would pay the same dollar amount of payroll tax.
A worker with an annual income of $200,000 and one with an annual income of
$102,000 would pay the same dollar amount of payroll tax.
The top 20% of income earners earned over 50% of total U.S. incomes in 2001,
and they paid approximately 60% of the total payroll taxes collected that year.
The percentage of income paid in payroll taxes would be the same for a worker
with an annual income of $50,000 and a worker with an annual income of
$100,000.
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Question
Income tax rates are such that Mr. R. Hood earns $35,000 per year and pays $7,000 in taxes,
while Mr. G. Gisbourne earns $1 million per year and pays $200,000 in taxes. This tax is:
58 of 98 5/26/2013 11:04 PM
Answer progressive.
regressive.
proportional.
a lump-sum tax.
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Question
An efficient way to finance the provision of city services (such as street cleaning) would be to
charge all city residents a lump-sum tax. Such a tax would be:
Answer progressive.
regressive.
proportional.
This question can't be answered without knowing the amount of the tax.
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Question
Suppose Governor Meridias initiates a payroll tax of 10% on all income up to $50,000. Any
income above $50,000 is not taxed. This payroll tax will be:
Answer progressive.
proportional.
regressive.
structural.
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Question
Reference: Ref 7-15
(Table: Taxes, Spending, and Income) Look at the table Taxes, Spending, and Income.
Suppose Governor Meridias decides to initiate a state-level sales tax of 5% on all sales. The
table shows how household spending varies with household income. This tax will be:
Answer progressive.
proportional.
regressive.
structural.
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Question
Reference: Ref 7-15
(Table: Taxes, Spending, and Income) Look at the table Taxes, Spending, and Income.
Suppose Governor Meridias decides to initiate a state-level sales tax of 5% on all sales. The
table shows how household spending varies with household income. A poor household will
spend ________ of its annual income on the sales tax, while a wealthy household will spend
________ of its annual income.
Answer 4.5%; 4%
5%; 5%
5%; 3.5%
3.5%; 4.5%
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Question
(Table: Taxes, Spending, and Income) Suppose Governor Meridias decides to initiate a
state-level income tax. The first $50,000 of household income is tax-free, while any income
above $50,000 is taxed at 10%. The average tax rate for a household earning $75,000 is:
Answer 10%.
5%.
3.3%.
0%.
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Question
(Table: Taxes, Spending, and Income) Suppose Governor Meridias initiates a payroll tax of
10% on all income up to $50,000. Any income above $50,000 is not taxed. An individual
earning $75,000 will have an average tax rate of:
Answer 10%.
0%.
6.67%.
5%.
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Question
If the government follows an income tax system in which personal income up to and including
$25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over
$50,000 is taxed at 25%, a family earning income equal to $60,000 will pay a marginal tax rate
of ________ and an average tax rate of ________.
Answer 12.5%; 25%
10%; 15%
25%; 8.3%
25%; 25%
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Question
The rate that would apply to an additional $1 of taxable income received by a taxpayer is the:
Answer marginal tax rate.
average tax rate.
total tax rate.
lower tax rate.
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Question
Eli has annual earnings of $100,000 and Molly has annual earnings of $50,000. Each
consumer goes to the mall and purchases a microwave oven at a price of $100 and each pays
an additional 7%, or $7, in sales tax to the state. This sales tax is an example of:
Answer a regressive tax.
a wealth tax.
a progressive tax.
a property tax.
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Question
U.S. federal taxes are generally ________, while state and local taxes are generally
________.
Answer progressive; progressive
progressive; regressive
regressive; progressive
regressive; regressive
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Question
The U.S. income tax is ________, while the payroll tax is ________.
Answer progressive; progressive
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regressive; regressive
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Question
The ________ tax rate on income represents the additional tax an individual pays if his or her
income goes up by $1. This rate has ________ since 2000.
Answer average; increased
marginal; decreased
marginal; increased
average; decreased
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Question
________ and ________ are the largest sources of state and local tax revenue.
Answer Profit taxes; sales taxes.
Property taxes; sales taxes.
Payroll taxes; income taxes.
Sales taxes; income taxes.
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Question
Sales taxes are considered to be:
progressive.
degressive.
regressive.
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Question
Payroll taxes are considered to be:
progressive.
degressive.
regressive.
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Question
The evidence suggests that federal taxes in the U.S. economy are:
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Answer regressive.
progressive.
higher than they've ever been before.
proportional.
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Question
The evidence suggests that taken collectively, taxes in the U.S. economy are:
Answer extremely regressive.
extremely progressive.
somewhat progressive.
proportional.
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Question
Evidence suggests that taken collectively, taxes in the U.S. economy are:
Answer extremely regressive.
mildly regressive.
proportional.
somewhat progressive.
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Question
Sales taxes are considered to be:
Answer an unfair burden on wealthy people who spend more money on goods subject to
sales tax.
progressive.
the most important source of revenue for the federal government.
regressive.
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Question
The structure of the U.S. federal income tax system reflects the:
Answer tax-efficiency principle.
benefits principle.
lump-sum tax principle.
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Question
Which of the following is the largest source of government revenue?
Answer sales taxes
property taxes
individual income taxes
death taxes
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Question
The two most important sources of federal tax revenue are the:
Answer payroll and income taxes.
corporate income and payroll taxes.
excise and income taxes.
Social Security and excise taxes.
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Question
Which of the following taxes is not a major source of tax revenue for the federal government?
Answer income tax
payroll tax
profits tax
property tax
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Question
Because of tax competition, state and local taxes tend to be ________ and federal taxes tend
to be ________.
Answer regressive; regressive
progressive; progressive
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Question
Which of the following is a tax that tends to encourage consumption and discourage saving
and investing?
Answer a consumption tax
a sales tax
a poll tax
an income tax
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Question
Which of the following taxes is not used in the United States?
Answer property tax
value-added tax (VAT)
profits tax
sales tax
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Question
If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is
taxed at 10%, and income over $50,000 is taxed at 20%, then a family earning an income of
$75,000 will pay ________ in personal taxes.
Answer $6,000
$7,500
$11,250
$15,000
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Question
$75,000 will pay an average tax rate of:
Answer 5%.
7.5%.
10%.
20%.
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Question
$75,000 will pay a marginal tax rate of:
Answer 5%.
7.5%.
10%.
20%.
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Question
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$100,000 will pay ________ in personal taxes.

Answer $6,000
$10,000
$13,000
$25,000
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Question
$100,000 will pay an average tax rate of:
Answer 5%.
10%.
13%.
25%.
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Question
$100,000 will pay a marginal tax rate of:
Answer 5%.
10%.
13%.
25%.
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Question
Figure: Tax Incidence
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged, when a
good or service is characterized by a relatively elastic supply, as shown in panel ________, a
greater share of the burden of an excise tax is borne by ________.
Answer A; buyers
B; sellers
B; buyers
A; sellers
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Question
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Reference: Ref 7-16
good or service is characterized by a relatively inelastic supply, as shown in panel ________, a
greater share of the burden of an excise tax is borne by ________.
Answer A; buyers
B; sellers
A; sellers
B; buyers
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Question
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Reference: Ref 7-16
good or service is characterized by a relatively elastic demand, as shown in panel ________,
the greater share of the burden of an excise tax imposed on it is borne by ________.
Answer D; buyers
D; sellers
C; sellers
C; buyers
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Question
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Reference: Ref 7-16
good or service is characterized by a relatively inelastic demand, as shown in panel ________,
the greater share of the burden of an excise tax imposed on it is borne by ________.
Answer C; buyers
C; sellers
D; sellers
D; buyers
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Question
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged, the effect
of an excise tax imposed on gasoline in the short run is most likely illustrated by panel
________, and the greater share of the burden of the excise tax (shown by the tax wedge in
each panel) is borne by ________.
Answer A; buyers
B; sellers
A; sellers
B; buyers
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Question
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. All other things unchanged, the effect
of an excise tax imposed on gasoline in the long run is most likely illustrated by panel
________, and the greater share of the burden of the excise tax (shown by the tax wedge in
each panel) is borne by ________.
Answer A; buyers
B; sellers
B; buyers
A; sellers
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Question
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. Based on the figure, the deadweight
loss of an excise tax is likely to be:
Answer greater in panel C than in panel D.
greater in panel C than in panel A.
greater in panel D than in panel A.
greater in panel B than in panel A.
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Question
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. Based on the figure, the deadweight
loss of an excise tax is likely to be:
Answer greater in panel D than in panel C.
greater in panel A than in panel B.
greater in panel C than in panel A.
greater in panel B than in panel A.
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Question
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. Consumers are likely to bear more of
the burden of an excise tax in the situations illustrated by panels:
Answer A and B.
A and D.
B and D.
B and C.
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Question
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Reference: Ref 7-16
(Figure: Tax Incidence) Look at the figure Tax Incidence. Producers are likely to bear more of
the burden of an excise tax in the situations illustrated by panels:
Answer A and B.
A and C.
B and D.
B and C.
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Question
Figure: The Gasoline Market
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Reference: Ref 7-17
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. An excise tax has been
levied on each gallon of gasoline supplied by producers. Based on the graph, the incidence of
the tax on suppliers is:
Answer $1.50.
$1.
$0.75.
$15,000.
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Question
Reference: Ref 7-17
(Figure: The Gasoline Market) Look at the figure The Gasoline Market. An excise tax has
been levied on each gallon of gasoline supplied by producers, shifting the supply curve
upward. What is the tax rate?
Answer $1.75 per gallon
$1 per gallon
$2.50
$0.50
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Question
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Reference: Ref 7-17
levied on each gallon of gasoline supplied by producers, shifting the supply curve upward. The
total tax revenue collected by the government is equal to:
Answer $1.50.
$15,000.
$26,250.
$30,000.
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Question
Reference: Ref 7-17
levied on each gallon of gasoline, shifting the supply curve upward. The deadweight loss from
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this tax is equal to:

Answer $1.50.
$5,000.
$15,000.
$4,375.
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Question
Reference: Ref 7-18
(Figure: The Market for Lattes) If an excise tax of $1.50 is assessed on each latte, government
revenue will be:
Answer $400
$600
$800
$1,200
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Question
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Reference: Ref 7-18
(Figure: The Market for Lattes) If an excise tax of $2.25 is assessed on each latte, government
revenue will be:
Answer $225
$400
$450
$1,800
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Question
Reference: Ref 7-18
(Figure: The Market for Lattes) If the excise tax on lattes increases from $1.50 per latte to
$2.25 per latte, government revenue will _________ by ________ .
Answer decrease; $150
decrease; $75
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increase; $150
increase; $225
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True/False 0 points
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.
Answer True
False
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True/False 0 points
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.
Answer True
False
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True/False 0 points
Question
In general, the incidence of an excise tax is shared between buyers and sellers.
Answer True
False
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True/False 0 points
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.
Answer True
False
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True/False 0 points
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.
Answer True
False
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True/False 0 points
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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.
Answer True
False
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True/False 0 points
Question
If demand for a good is perfectly inelastic, then consumers will bear the entire burden of an
excise tax imposed on that good.
Answer True
False
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True/False 0 points
Question
The deadweight loss of an excise tax arises because the tax prevents some mutually
beneficial transactions.
Answer True
False
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True/False 0 points
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).
Answer True
False
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True/False 0 points
Question
Cigarette taxes have had the effect of eliminating the wedge between the demand price for
cigarettes and the supply price of cigarettes.
Answer True
False
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True/False 0 points
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.
Answer True
False
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True/False 0 points
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.
Answer True
False
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True/False 0 points
Question
If demand is perfectly inelastic, the deadweight loss caused by a tax will be zero.
Answer True
False
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True/False 0 points
Question
The benefits principle says that taxes should be used to benefit the maximum number of
people.
Answer True
False
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True/False 0 points
Question
For a tax system to achieve equity, it must first achieve efficiency.
Answer True
False
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True/False 0 points
Question
A tax system causes a loss in efficiency because taxes distort incentives.
Answer True
False
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True/False 0 points
Question
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.
Answer True
False
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True/False 0 points
Question
Lump-sum taxes promote economic efficiency but violate the ability-to-pay principle.
Answer True
False
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True/False 0 points
Question
The argument for progressive taxes is based on the ability-to-pay principle.
Answer True
False
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True/False 0 points
Question
A tax system achieves efficiency when it maximizes the amount of tax paid by the wealthiest
citizens.
Answer True
False
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True/False 0 points
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.
Answer True
False
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True/False 0 points
Question
If the marginal tax rate and the average tax rate are equal for all levels of income, then the tax
structure is proportional.
Answer True
False
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True/False 0 points
Question
Overall, the taxes collected by the federal government are progressive.
Answer True
False
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True/False 0 points
Question
In the United States, poor people and the middle class pay the largest share of income taxes.
Answer True
False
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True/False 0 points
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.
Answer True
False
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Essay 0 points
Question
Explain how an excise tax levied on suppliers affects the supply curve.
Answer The supply curve shifts upward by the amount of the tax at all quantities.
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Essay 0 points
Question
A politician says that a tax on good X will not increase the price of good X paid by consumers.
Is there any way that this can be an accurate statement?
Answer Yes. If the demand curve is perfectly elastic, then a tax on suppliers shifts the supply
curve upward, but the new equilibrium price to the consumer is unchanged. This is
also accurate if supply is perfectly inelastic.
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Essay 0 points
Question
Under what supply and demand conditions would an excise tax create a large incidence of the
tax on suppliers and a small incidence of the tax on consumers? Explain how this works.
Answer If the supply curve is relatively inelastic and the demand curve is relatively elastic, the
burden of a tax will fall mainly on suppliers. When demand is elastic, a price increase
will prompt a large decrease in quantity demanded. But because suppliers have an
inelastic supply curve, the quantity supplied cannot change by much. Therefore, most
of the tax is paid by suppliers, the group least responsive to a price change.
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Question
What is the difference between a tax rate and tax revenue?
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Answer The tax rate is the amount of tax being levied per unit on the good being taxed. The
tax revenue is the total amount that is collected by the taxation. Tax revenue is equal
to the tax rate multiplied by the quantity bought and sold under the tax.
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Essay 0 points
Question
How is it that a higher tax rate can increase tax revenue in some cases, but a higher tax rate
can decrease tax revenue in other cases? Relate this to the price elasticity of demand.
Answer A higher tax will increase the price of the good being taxed, and this will prompt a
decrease in the quantity of the good that is bought and sold. If the decrease in
quantity outweighs the increase in the price, then tax revenue will fall. This is related to
elasticity. If the price increase occurs in the elastic portion of the demand curve, then
the percentage change in quantity (a decrease) will be stronger than the percentage
change in price (an increase).
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Essay 0 points
Question
How does an excise tax create a cost to society?
Answer The tax drives a wedge between the price paid by consumers and the price received
by producers. This wedge results in a decreased quantity of the good that is bought
and sold. The difference between the untaxed equilibrium quantity and the new lower
after-tax equilibrium quantity represents transactions that don't occur but that would
have occurred without the tax. These lost transactions mean lost consumer and
producer surplus, and this deadweight loss is the main cost of an excise tax.
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Essay 0 points
Question
Are there any supply and demand conditions that would create zero deadweight loss when an
excise tax is imposed?
Answer If either the supply or the demand curve is perfectly inelastic (vertical), a tax will not
change the equilibrium quantity of the good exchanged in the market. With no
decrease in quantity, there will be no deadweight loss. Also, if either supply or
demand curve is perfectly elastic (horizontal), there is no deadweight loss.
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Question
Some highways and bridges require drivers to pay a toll to use that infrastructure. Which
principle of tax fairness does this describe?
Answer A highway toll is an example of the benefits principle to tax fairness. Only those who
use (benefit from) the highway or bridge are asked to pay for it. If you never drive
across the bridge, you will never pay this tax.
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Question
Periodically automobile drivers need to go to their state department of motor vehicles to
relicense their cars and trucks. The licensing fees that drivers pay to their state governments
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are a form of a tax. Design a licensing tax that is regressive and one that is progressive.
Answer A regressive tax might be a flat lump-sum payment that each driver, regardless of
income, must pay. A wealthy person and a poor person would pay the same fee, and
therefore the poor person pays a higher percentage of his income to license his car.
A progressive tax must be something that is related to the driver's income. Some
states have a system such that your licensing fee is related to the value of the car that
you drive. If you drive a brand-new fancy sports car, you pay more than a person who
drives an old, run-down pickup truck. Because the person with the fancy sports car is
probably earning more income than the person with the pickup truck, this tax is more
progressive.
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Question
Suppose the supply of tobacco is elastic and the demand for tobacco is inelastic. If an excise
tax is levied on the suppliers of tobacco, will the incidence fall mostly on consumers or mostly
on producers? Will there be a large amount or small amount of deadweight loss? Will tax
revenue from the tobacco tax fall or rise?
Answer Because consumers are the group less responsive to a higher price, consumers will
bear the largest share of the tobacco tax. This inelastic demand results in a small
decrease in quantity demanded once the tax is levied, so there will be a small degree
of deadweight loss. Because the demand is inelastic, any percentage increase in
price will outweigh a smaller percentage decrease in quantity, and therefore tax
revenue collected will rise.
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Question
Producers in a particular market will bear the greater burden of an excise tax:
Answer the more price-elastic the demand is relative to supply.
the less price-elastic demand is relative to supply.
if demand has the same price elasticity as supply.
regardless of the price elasticity of demand or supply.
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Question
Consumers in a particular market will bear the greater burden of an excise tax:
Answer the more price-elastic supply is relative to demand.
the less price-elastic supply is relative to demand.
if supply has the same price elasticity as demand.
regardless of the price elasticity of demand or supply.
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Question
Suppose price elasticity of demand is relatively inelastic for good X. If the price elasticity of
supply for good X is elastic, and an excise tax is imposed on good X, who will bear the greater
burden of the tax?
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Answer consumers
producers
both consumers and producers equally
government
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Question
Suppose the price elasticity of demand is relatively elastic and the price elasticity of supply is
relatively inelastic in a specific market. If an excise tax is imposed on this good, who will bear
the greater burden of the tax?
Answer consumers
producers
both consumers and producers equally
government
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Question
When the imposition of an excise tax causes the quantity demanded and quantity supplied to
decrease, this will result in:
Answer deadweight loss.
increases in producer surplus.
increases in consumer surplus.
increases in both consumer and producer surplus.
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Question
Price elasticities of demand and supply will not play a major role in determining which of the
following?
Answer the ability of policy makers to change consumption of a good via the imposition of
an excise tax
the deadweight loss arising from the imposition of an excise tax
the burden of the tax on consumers and producers
administrative costs of imposing an excise tax
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Question
Deadweight losses arising from the presence of an excise tax are greatest when demand:
Answer and supply are relatively inelastic.
is relatively inelastic and supply is relatively elastic
is relatively elastic and supply is relatively inelastic.
and supply are relatively elastic.
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Question
The ability-to-pay principle regarding taxes suggests that:
Answer the efficiency of a tax is the key feature in designing a tax.
those who have the greater ability to pay should bear the greater burden of the tax.
those who benefit most from the tax should bear the greater burden of the tax.
higher-income individuals should pay the same amount as lower-income
individuals.
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Question
The benefits principle of tax payments means individuals pay based on the:
Answer benefits they gain from use of a good or service.
benefits gained by society as a whole.
benefits to government from having taxpayers.
ability to pay.
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Question
Reference: Ref 7-19
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals. A
regressive tax structure can be found in:
Answer proposal 1.
proposal 2.
proposal 3.
all of the proposals.
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Question
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Reference: Ref 7-19
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals. Policy
makers interested in implementing a progressive tax structure would suggest using:
Answer proposal 1.
proposal 2.
proposal 3.
all of the proposals, since all are progressive.
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Question
Reference: Ref 7-19
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals. If one
wished to use a proportional or flat tax structure, one should use proposal ________, in which
the percentage of income taxed is ________.
Answer 1; 20%
2; 10%
3; 20%
2; 20%
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Question
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Reference: Ref 7-19
(Table: Three Tax Structure Proposals) Look at the table Three Tax Structure Proposals. What
percentage of income does an individual pay in taxes under proposal 3 if that individual's
pre-tax income is $100,000?
Answer 2%
10%
20%
25%
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Question
A regressive tax structure is one in which taxes:
Answer rise less than in proportion to income.
rise more than in proportion to income.
rise exactly in proportion to income.
stay the same regardless of income changes.
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Question
The percentage of an increase in income that is taxed is:
Answer the marginal tax rate.
a regressive tax.
a flat tax.
after tax.
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Question
In the United States, taxes tend to be regressive at:
Answer federal, state, and local levels.
federal and state levels.
state and local levels.
no levels of government.
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Question
All of the following are costs associated with the imposition of a tax except:
Answer deadweight loss.
administrative cost.
tax revenues received from taxpayers.
equilibrium pricing.
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Question
Figure: A Market with a Tax
Reference: Ref 7-20
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The excise tax imposed on
this good is equal to:
Answer P1 – P2.
P1 – P3
P2 – P3.
P1 – P5.
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Question
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Reference: Ref 7-20
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. Before the tax is imposed,
consumer surplus is equal to the areas:
Answer A + B + C + D + E.
A + B + C.
A + B + C + D + E + F.
D + E + F.
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Question
Reference: Ref 7-20
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. Before the tax, producer
surplus is equal to the areas:
Answer A + B + C + D.
D + E + F + G.
A + B + C + D + E + F.
A + B + C.
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Question
Reference: Ref 7-20
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The tax revenue collected
by the government is equal to the area:
Answer (P1 – P3)Q1
(P1 – P5)Q2.
(P2 – P3)Q1.
(P1 – P2)Q2.
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Question
Reference: Ref 7-20
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(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The transfer of consumer
surplus to the government is equal to:
Answer B.
C.
D.
F.
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Question
Reference: Ref 7-20
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The deadweight loss
arising from the imposition of this tax is equal to the areas:
Answer B, D.
D, E.
B, C.
C, F.
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Question
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Reference: Ref 7-20
(Figure: A Market with a Tax) Look at the figure A Market with a Tax. The efficiency loss
resulting from this tax is:
Answer (P1 – P3)Q2.
(P1 – P2)Q1
1/2(P1 – P3)(Q2 – Q1).
1/2(P1 – P3)Q1.
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Question
Scenario: The Market for Good X:
The market for good X can be depicted with the following demand and supply equations:
Demand: P = 50 – 1/2Q
Supply: P = 1/3Q
where P is price per unit and Q represents quantity in units. Policy makers plan on imposing a
$1 per unit tax on this good.
Reference: Ref 7-21
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. If a $1 per
unit tax is imposed on this good, the new supply curve will be:
Answer P = 1/3Q + 1.
P = 50 – 1/2Q
P = 1/3Q – 1.
P = 1/3Q + 1 + 50 – 1/2Q.
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Question
Demand: P = 50 – 1/2Q
Supply: P = 1/3Q
96 of 98 5/26/2013 11:04 PM
Reference: Ref 7-21
unit tax is imposed, the price of good X will increase by:
Answer $20.
$0.60.
$1.00.
$1.50.
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Question
Demand: P = 50 – 1/2Q
Supply: P = 1/3Q
Reference: Ref 7-21
unit tax is imposed, the deadweight loss associated with the tax will be equal to:
Answer $1.00
$20.00.
$0.50.
$0.60.
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Question
Demand: P = 50 – 1/2Q
Supply: P = 1/3Q
Reference: Ref 7-21
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The tax
revenue collected by government from a $1 per unit tax will be:
Answer $1.00.
$58.80.
$60.00.
$60.50.
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97 of 98 5/26/2013 11:04 PM
Question
Demand: P = 50 – 1/2Q
Supply: P = 1/3Q
Reference: Ref 7-21
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The per-unit
tax incidence on producers is equal to:
Answer $1.00.
$0.40.
$58.80.
$60.00.
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Question
Demand: P = 50 – 1/2Q
Supply: P = 1/3Q
Reference: Ref 7-21
(Scenario: The Market for Good X) Look at the scenario The Market for Good X. The per-unit
tax incidence on consumers is equal to:
Answer $1.00.
$0.60.
$58.80.
$60.00.
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Reference: Ref 7-1

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Answer decrease from $2 to $1.75.

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