Deck 20: Taxation and the Public Budget

Question 1

Many tax-funded programs are intended to:

A)increase efficiency.
B)increase income inequality.
C)provide basic human needs.
D)transfer surplus from producers to consumers.

Answer 1

provide basic human needs.

Question 2

When evaluating the costs and benefits of alternative types of taxes, economists find it useful to consider: efficiency. revenue. incidence.

A)I only
B)II and III only
C)III only
D)I, II, and III

Answer 2

I, II, and III

Question 3

Which of the following is an example of a tax-funded program intended to provide basic human needs?

A)Public education
B)Police protection
C)Health care
D)National defense

Answer 3

Health care

Question 4

When a tax is present in a market, the price paid by consumers:

A)equals that received by suppliers, but it is higher than the market price in the absence of taxes.
B)is greater than that received by suppliers.
C)is less than that received by suppliers.
D)equals that received by suppliers, but it is lower than the market price in the absence of taxes.

Question 5

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. What change does this tax cause?

A)An increase in consumption from Q1 to Q2
B)A decrease in consumption from Q2 to Q1
C)A decrease in the price consumers pay from P3 to P1
D)A decrease in the price suppliers receive from P3 to P1

Question 6

A tax on which of the following goods is specifically designed to reduce consumption of that good?

A)Wages
B)Capital gains
C)Gasoline
D)Flowers

Question 7

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. The amount of the tax imposed is equal to:

A)(P₁ − P₃).
B)(P₂ − P₁).
C)(P₄ − P₂).
D)(P₄ − P₃).

Question 8

One of the primary aims of taxation is to:

A)increase government revenues.
B)reduce the equilibrium quantity.
C)alter the incentives of market participants.
D)All of these are primary goals of taxation.

Question 9

The primary intent of a tax on tobacco is to:

A)reduce its consumption.
B)raise government revenues.
C)increase market surplus.
D)support producers of tobacco.

Question 10

Which of the following is not an example of a commonly tax-funded program?

A)Public education
B)Highways
C)Housing for those in need
D)Oil and gas production

Question 11

One reason governments impose taxes is to:

A)raise government revenues.
B)increase consumer spending.
C)spur economic growth.
D)encourage more production.

Question 12

A tax will sometimes alter consumers' incentives. Which of the following statements about such a tax is true? This type of tax is meant to increase consumption. A tax designed to raise revenue may sometimes alter consumer incentives as a side effect. This type of tax is called a sin tax.

A)III only
B)I and II only
C)II only
D)I, II, and III

Question 13

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. What change does this tax cause?

A)Positive government revenue and decreased consumption
B)Zero government revenue and decreased consumption
C)A transfer of revenue to surplus and increased consumption
D)Positive government revenue and increased consumption

Question 14

Taxes change behavior in which of the following ways? Taxes alter the incentives faced by market participants. Taxes drive a wedge between the price paid by buyers and the price received by sellers. Taxes result in a lower equilibrium quantity of the good or service being consumed. Taxes increase consumer and producer surplus.

A)I and III only
B)II, III, and IV only
C)II and IV only
D)I, II, and III only

Question 15

Which of the following is an example of a tax-funded program primarily intended to stimulate economic growth?

A)Maintenance of public highways
B)Provision of housing to those in need
C)Provision of basic healthcare
D)Provision of national defense

Question 16

A tax on which of the following is specifically designed to change individuals' behavior? Cigarettes Gasoline Income

A)I only
B)I and II only
C)III only
D)I, II, and III

Question 17

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. The distance in the graph from point A to point C represents all of the following except:

A)the amount of the tax.
B)the difference between the price paid by consumers and the price received by sellers.
C)the "tax wedge".
D)the total tax revenue generated for the government.

Question 18

In deciding which programs the government should fund with tax revenues:

A)there is always perfect consensus before a program is funded.
B)there is often widespread disagreement.
C)a popular vote for new programs is conducted.
D)each individual is able to decide where tax dollars are spent.

Question 19

One cost associated with the imposition of taxes is:

A)deadweight loss.
B)scarcity.
C)shortages.
D)overconsumption.

Question 20

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. Which areas of the graph represent the amount of revenue that is generated by the tax?

A)B + C + F + G
B)F + G + H + I + L + M + N + O
C)B + C + F + G + L + M
D)B + C + D + E + F + G + H + I + J + K + L + M + N + O + P

Question 21

The effort used to collect and manage the revenue from taxes is called:

A)an externality.
B)deadweight loss.
C)administrative burden.
D)transfer of surplus.

Question 22

Considering a given increase in price due to a tax, the less price elastic the demand curve is, the:

A)larger the drop in equilibrium quantity.
B)smaller the amount of deadweight loss created.
C)larger the amount of deadweight loss created.
D)more surplus is transferred to consumers.

Question 23

When a tax is imposed, the surplus that is lost to buyers and sellers but converted into tax revenue is:

A)transferred to others through public programs.
B)considered a cost of taxation.
C)part of deadweight loss.
D)All of these are true.

Question 24

When a tax is imposed, some of the lost surplus is converted to tax revenue and the rest is:

A)transferred to consumers.
B)transferred to producers.
C)transferred to recipients of government services.
D)simply lost.

Question 25

Deadweight loss as a result of taxation occurs because the:

A)quantity of the good that is bought and sold is above the market equilibrium quantity.
B)price that is charged to the consumer is lower than the price the seller receives.
C)price that is charged to the consumer is above the market equilibrium quantity.
D)quantity of the good that is bought and sold is below the market equilibrium quantity.

Question 26

The total amount of surplus lost due to taxation is:

A)greater than the amount of revenue generated.
B)less than the amount of revenue generated.
C)transferred to the government in the form of tax revenues.
D)used to fund public services.

Question 27

The difference between the loss of surplus to taxpayers and the tax revenue collected is called:

A)an externality.
B)deadweight loss.
C)consumer surplus.
D)producer surplus.

Question 28

How much deadweight loss a tax causes is primarily determined by:

A)how responsive buyers and sellers are to a price change.
B)how much tax revenue the government generates.
C)whether the tax is imposed on the buyer or seller.
D)the ability of the government to impose the tax.

Question 29

In order to minimize deadweight loss generated by taxation, a tax should be placed on goods that are:

A)price elastic.
B)price inelastic.
C)expensive.
D)popular.

Question 30

When a tax is imposed, the surplus that is lost and not converted to tax revenue is:

A)deadweight loss.
B)value that disappears.
C)not transferred to anyone else.
D)All of these are true.

Question 31

How much deadweight loss a tax causes depends on all of the following except:

A)how responsive buyers and sellers are to a price change.
B)the price elasticity of supply.
C)the price elasticity of demand.
D)who the tax is imposed upon.

Question 32

Deadweight loss is minimized when a tax is levied on a good for which:

A)a price change is unlikely to cause people to change their behavior.
B)a price change is very likely to cause people to change their behavior.
C)a large income elasticity of demand exists.
D)a small income elasticity of demand exists.

Question 33

When a tax is imposed, the surplus that is lost to buyers and sellers but converted into tax revenue is:

A)considered a cost of taxation.
B)part of deadweight loss.
C)the sole source of deadweight loss.
D)not part of deadweight loss.

Question 34

Part of the surplus lost to market participants when a tax is imposed is:

A)transferred to others who are affected by the tax.
B)transferred to the government in revenues.
C)redistributed from sellers to buyers.
D)redistributed from buyers to sellers.

Question 35

A lump-sum tax:

A)charges the same amount to each taxpayer, regardless of economic behavior or circumstances.
B)refers to annual, rather than quarterly, tax payments throughout the year.
C)is tied to spending habits, not income levels.
D)charges the same percentage to each taxpayer, regardless of economic behavior or circumstances.

Question 36

Considering a given increase in price due to a tax, the more price elastic the supply curve is, the:

A)larger the drop in equilibrium quantity.
B)smaller the drop in equilibrium quantity.
C)smaller the amount of deadweight loss created.
D)less surplus is transferred to consumers.

Question 37

When a tax is imposed and some of the lost surplus becomes tax revenue, which group benefits?

A)Consumers
B)Producers
C)Recipients of government services
D)Only the government

Question 38

A tax imposed in an otherwise efficient market:

A)increases efficiency.
B)decreases total surplus.
C)maximizes total surplus.
D)often fails to generate revenue.

Question 39

The graph shown depicts a tax being imposed, causing demand to shift from D1 to D2. Which area of the graph represents the deadweight loss associated with the tax?

A)CBD
B)ABC
C)ABCD
D)P1DCP2

Question 40

One cost associated with the imposition of taxes is the:

A)redistribution of surplus.
B)resulting underconsumption.
C)administrative burden.
D)change in relative values.

Question 41

The administrative burden of taxes:

A)is smallest with a lump-sum tax.
B)depends on the amount of revenue generated.
C)grows smaller as a tax gets larger.
D)is the same across all types of taxes.

Question 42

All taxes carry the cost of time spent:

A)creating procedures for collecting revenues.
B)enforcing tax payments.
C)managing collected funds.
D)All of these are costs incurred by taxes.

Question 43

A lump-sum tax is also known as a(n):

A)income tax.
B)property tax.
C)sales tax.
D)head tax.

Question 44

In general, more efficient taxes have:

A)lower administrative burdens.
B)more complexity.
C)lower revenues given the size of the tax.
D)All of these are true.

Question 45

Which term is defined as the logistical costs associated with implementing a tax?

A)Deadweight loss
B)Administrative burden
C)Economic incidence
D)Mandatory burden

Question 46

Suppose the government currently imposes a $4 per pack tax on cigarettes, and 500 people purchase a total of 1,500 packs of cigarettes each month. What is the total monthly tax revenue?

A)$2,000
B)$6,000
C)Less than $2,000
D)This cannot be determined without more information.

Question 47

A lump-sum tax: is the most efficient form of taxation. charges the same amount to each taxpayer. is a regressive tax.

A)II only
B)II and III only
C)I and III only
D)I, II, and III

Question 48

For any given tax, the revenue generated is:

A)larger in markets with price elastic demand and supply.
B)the same regardless of price elasticity.
C)always maximized in markets with price elastic demand and supply.
D)smaller in markets with price-elastic demand and supply.

Question 49

A new toll of $0.50 per car is put into effect on a roadway, and 1,000 cars have since used the roadway. What is the total tax revenue?

A)$500
B)$2,000
C)$1,000
D)$5,000

Question 50

To calculate tax revenue, we:

A)divide total revenue by the tax per unit.
B)multiply total revenue by the tax per unit.
C)multiply the tax per unit by the number of units being taxed.
D)multiply the tax per unit by the price of the good being taxed.

Question 51

Imposing taxes in markets where demand and supply are price inelastic causes:

A)less inefficiency than in price elastic markets.
B)more inefficiency than in price elastic markets.
C)causes no inefficiency.
D)cause the same amount of inefficiency as in price elastic markets.

Question 52

In general, the more complex the tax, the:

A)more tax revenues it will generate.
B)more efficient it will be.
C)higher the administrative burden will be.
D)more deadweight loss it will create.

Question 53

A bridge that typically is traversed by 1,000 cars per day plans to implement a toll of $0.50 per car for passage, starting next week. The tax revenues generated in one day after the toll is implemented will be:

A)$1,000.
B)$500.
C)less than $500.
D)between $500 and $1,000.

Question 54

Lump-sum taxes reduce the total amount of revenue that can be raised because:

A)people perceive them to be unfair.
B)they have large administrative burdens.
C)the size of the tax is limited by the poorest citizen's ability to pay.
D)they are often applied inefficiently.

Question 55

If the government's primary goal is to maximize efficiency and minimize deadweight loss, it should impose a(n):

A)income tax.
B)lump-sum tax.
C)sin tax.
D)proportional tax.

Question 56

The administrative burden of a tax is:

A)the difference between the revenues generated from the tax and the cost of the government program it is supposed to fund.
B)the portion of the revenues that come from the government.
C)the portion of the revenues that come from the producers.
D)the logistical costs associated with implementing the tax.

Question 57

In the real world, lump-sum taxes are:

A)rarely used.
B)commonly used.
C)applied only to the very wealthy.
D)common only in developing nations.

Question 58

In the real world, lump-sum taxes are:

A)often perceived as unfair.
B)rarely used.
C)very efficient.
D)All of these are true.

Question 59

The federal income tax _______ than a state sales tax.

A)has a higher administrative burden
B)has a lower administrative burden
C)is less complex
D)is more regressive

Question 60

The federal income tax _______ than a state sales tax.

A)has a lower administrative burden
B)is less efficient
C)is less complex
D)is easier to administer

Question 61

If the _______ effect is greater than the _______ effect, a tax cut will increase revenue.

A)price; quantity
B)quantity; income
C)income; price
D)quantity; price

Question 62

At lower tax rates the _______ effect will outweigh the _______ effect.

A)quantity; price
B)quantity; income
C)price; quantity
D)income; price

Question 63

Consider the Laffer curve for a hypothetical good as displayed in the graph shown. Suppose the current tax rate is 45 percent. This implies that: the price effect currently outweighs the quantity effect.the government could increase revenue by lowering the tax rate.the current tax rate is efficient.

A)I only
B)II only
C)II and III only
D)I and II only

Question 64

When raising taxes, the quantity effect tells us that:

A)the government receives more revenue for each unit sold.
B)a higher tax rate will cause fewer units to be sold.
C)the government receives less revenue for each unit sold.
D)a higher tax rate will cause more units to be supplied.

Question 65

Suppose the government is considering imposing a $6 per unit tax in one of the markets shown in graphs I, II, III, and IV.

In which graph would this tax generate the largest revenue?

A)I
B)II
C)III
D)IV

Question 66

If the price effect outweighs the quantity effect, then a tax _______ will _______ revenue.

A)increase; raise
B)decrease; raise
C)increase; lower
D)increase; not change

Question 67

Raising taxes:

A)always raises tax revenues.
B)always decreases tax revenues.
C)can sometimes decrease tax revenues.
D)never decreases tax revenues.

Question 68

When raising taxes, the price effect tells us that:

A)a higher tax rate will cause fewer units to be sold.
B)the government receives more revenue for each unit sold.
C)the government receives less revenue for each unit sold.
D)a higher tax rate will cause more units to be supplied.

Question 69

When considering different tax levels, the revenue-maximizing point will be reached _______ when demand is _______ elastic.

A)slowly; more
B)quickly; more
C)quickly; less
D)quickly; unit

Question 70

The Laffer curve demonstrates that raising tax rates:

A)first increases and then eventually decreases tax revenues.
B)always increases tax revenues.
C)always decreases tax revenues.
D)first decreases and then eventually increases tax revenues.

Question 71

In general, raising taxes has:

A)increasing returns to revenue.
B)diminishing returns to revenue.
C)increasing then decreasing returns to revenue.
D)constant returns to revenue.

Question 72

When considering the interplay of the price and quantity effect of different tax levels, we realize that:

A)there is one tax level that maximizes tax revenues.
B)tax revenues will continue to increase at all levels where the price effect outweighs the quantity effect.
C)tax revenues will continue to decrease at all levels where the quantity effect outweighs the price effect.
D)All of these statements are true.

Question 73

A $0.50 tax on lemons currently generates $200 in revenue per day. If the tax increases to $2 per lemon, the revenue the tax generates will drop to $70. This tells us that in this range of tax rates, the _______ effect outweighs the _______ effect.

A)quantity; price
B)quantity; income
C)price; quantity
D)price; income

Question 74

Suppose the government has imposed a $6 per unit tax in the market shown in the graph. If the government raises the tax to $10 per unit:tax revenue will increase by $30,000.deadweight loss will increase by $16,000the quantity purchased will decrease by 2,000 units.

A)I only
B)II and III only
C)I and III only
D)I, II, and III

Question 75

The _______ effect tells us that when the government raises taxes, it receives more revenue per unit sold.

A)quantity
B)income
C)price
D)substitution

Question 76

The market for cigarettes likely has a _______ demand.

A)highly elastic
B)slightly elastic
C)highly inelastic
D)slightly inelastic

Question 77

Imposing a tax in a market with highly inelastic demand will:

A)cause more deadweight loss than imposing a tax in a market with elastic demand.
B)generate higher revenues than imposing a tax in a market with elastic demand.
C)be more equitable than imposing a tax in a market with elastic demand.
D)None of these are true.

Question 78

Taxing the market for alcohol at the same rate as the market for juice will likely:

A)cause less deadweight loss in the market for alcohol than it would in the market for juice.
B)cause more inefficiency in the market for alcohol than it would in the market for juice.
C)cause the quantity of alcohol demanded to greatly decrease.
D)affect the markets for alcohol and juice similarly in terms of revenue and inefficiency.

Question 79

Suppose the government is considering imposing a tax in one of the markets shown in graphs I, II, III, and IV.

If the government's goal is to raise as much revenue as possible while minimizing deadweight loss, it should impose the tax in the market in which graph?

A)I
B)II
C)III
D)IV

Question 80

The _______ tells us that when the government raises taxes, fewer units will be sold.

A)quantity
B)price
C)government spending
D)quality