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Exam 7: Taxes

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Question 121

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A regressive tax:

A) takes a higher percentage of income as income rises.
B) rises less than in proportion to income.
C) takes a fixed percentage of income regardless of the taxpayer's level of income.
D) takes a larger share of the income of high-income taxpayers than of low-income taxpayers.

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Question 122

Multiple Choice

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If demand and supply are both very elastic, a decrease in the rate of an excise tax will likely:

A) decrease government revenue.
B) increase government revenue.
C) not affect government revenue.
D) make demand and supply both inelastic.

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Question 123

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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.

Use the following to answer questions: Figure: The Market for Lattes -(Figure: The Market for Lattes) If an excise tax of $1.50 is assessed on each latte, government revenue will be:

The evidence suggests that taken collectively, taxes in the U.S. economy are:

If the main 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 demand is _____.

A tax of $10 on an income of $100, $25 on an income of $200, and $60 on an income of $300 is:

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.

_____ and _____ taxes are the largest sources of state and local government revenue.

According to the _____ principle, those who use public services should bear the burden of the tax that pays for them.

The price elasticity of demand for a particular cancer drug is zero and the price elasticity of supply is 0.50. If a $1 excise tax is levied on producers, how much of this tax will eventually be paid by consumers?

The 1990 "yacht tax" caused a large deadweight loss because demand for luxury yachts made in the United States is:

Suppose an income tax is levied on none 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?

Use the following to answer question: Figure: Market for Hotel Rooms -(Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms. Suppose with no tax 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 _____.

Use the following to answer questions: Figure: The Market for Blue Jeans -(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 consumer and producer surplus after the tax was levied?

If an excise tax is imposed on automobiles and collected from consumers:

_____ tax is NOT used in the United States.

Taxation according to the ability-to-pay principle is best illustrated in the United States by:

A tax leads to a(n) _____ in consumer surplus and a(n) _____ in producer surplus.

The deadweight loss of an excise tax arises because the tax prevents some mutually beneficial transactions.