Deck 20: Taxation and the Public Budget

Question 1

One cost associated with taxes is:

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

Answer 1

the administrative burden.

Question 2

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

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

Answer 2

administrative burden.

Question 3

One of the primary aims of taxation is:

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

Answer 3

All of these are primary goals of taxation.

Question 4

A concept useful in evaluating the costs and benefits of alternative types of taxes is:

A)efficiency.
B)revenue.
C)incidence.
D)All of these are used to evaluate the overall effect of taxes.

Question 5

The primary intent of the tax on tobacco is to:

A)reduce its consumption.
B)raise government revenues.
C)increase surplus.
D)None of these statements is true.

Question 6

A tax in an efficient market:

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

Question 7

An example of a tax-funded program is:

A)public education.
B)highways.
C)housing to those in need.
D)All of these are tax-funded programs.

Question 8

Many tax-funded programs are intended to:

A)increase surplus.
B)increase income inequality.
C)provide basic human needs.
D)All of these are uses for tax revenue.

Question 9

Taxes change behavior because they:

A)alter the incentives faced by market participants.
B)drive a wedge between the price paid by buyers and the price received by sellers.
C)result in a lower equilibrium quantity of the good or service being consumed.
D)All of these statements are true.

Question 10

Governments impose taxes in order to:

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

Question 11

An example of a tax-funded program primarily intended to stimulate economic growth is:

A)the maintenance of public highways.
B)the provision of housing to those in need.
C)the provision of basic healthcare.
D)All of these programs are intended to stimulate economic growth.

Question 12

Deadweight loss as a result of taxation occurs because:

A)the quantity of a good that is bought and sold is below the market equilibrium quantity.
B)the quantity of a good that is bought and sold is above the market equilibrium quantity.
C)the price that is charged the consumer is lower than the price the seller receives.
D)None of these statements is true.

Question 13

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

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

Question 14

When a tax alters consumers' incentives,it is:

A)sometimes a side effect of a tax designed to raise revenue.
B)always the explicit purpose of the policy.
C)called a sin tax.
D)meant to encourage increased consumption.

Question 15

An example of a tax specifically designed to reduce consumption of a good is a tax on:

A)chocolate.
B)cigarettes.
C)coffee.
D)All of these are examples of a tax.

Question 16

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 17

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

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

Question 18

One cost associated with the imposition of taxes is:

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

Question 19

An example of a tax specifically designed to reduce consumption of a good is a tax on:

A)alcohol.
B)cigarettes.
C)gasoline.
D)Taxes on all these goods are meant to reduce their consumption.

Question 20

An example of a tax-funded program intended to provide basic human needs is the provision of:

A)public education.
B)police protection.
C)health care.
D)national defense.

Question 21

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

A)are not likely to change their behavior much in response to a price change.
B)are very likely to change their behavior in response to a price change.
C)have a large income elasticity of demand.
D)have a small income elasticity of demand.

Question 22

The surplus that is lost and not converted to tax revenue when a tax is imposed is:

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

Question 23

In the real world,lump-sum taxes are:

A)rare.
B)common.
C)applied only to the wealthy in the U.S.
D)None of these statements is true.

Question 24

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)lost and considered a cost of taxation.
C)part of deadweight loss.
D)All of these statements are true.

Question 25

How much deadweight loss a tax causes depends on:

A)how responsive buyers and sellers are to a price change.
B)the price elasticity of supply.
C)the price elasticity of demand.
D)All of these statements are true.

Question 26

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 that is transferred to consumers.

Question 27

An example of a lump-sum tax is:

A)income tax.
B)property tax.
C)sales tax.
D)None of these is an example of a lump-sum tax.

Question 28

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 29

In the real world,lump-sum taxes are:

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

Question 30

When a tax is imposed,some of the lost surplus becomes tax revenues and the rest is transferred to:

A)consumers.
B)producers.
C)recipients of government services.
D)No one benefits from that lost surplus.

Question 31

If the primary goal in implementing a tax is to maximize efficiency and minimize deadweight loss,the government should impose:

A)an income tax.
B)a head tax.
C)a sin tax.
D)a proportional tax.

Question 32

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

A)the size of the tax is limited by the poorest citizens' ability to pay.
B)people perceive them to be unfair.
C)they have large administrative burdens.
D)All of these are reasons why they reduce the amount of revenue that can be raised.

Question 33

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 34

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 that is transferred to consumers.

Question 35

A lump-sum tax is:

A)a tax that charges the same amount to each taxpayer,regardless of their economic behavior or circumstances.
B)a tax that is charged once per year,in a lump sum,rather than throughout the year.
C)generally tied to spending habits,not income levels.
D)generally tied to income levels,not spending habits.

Question 36

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)None of these statements is true.

Question 37

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

A)transferred to the government in revenues.
B)transferred to others who are affected.
C)redistributed from seller to buyer.
D)None of these statements is true.

Question 38

A lump-sum tax is:

A)also called a head tax.
B)the most efficient form of taxation.
C)a tax that charges the same amount to each taxpayer.
D)All of these statements are true.

Question 39

When a tax is imposed and some of the lost surplus becomes tax revenues,the group that benefits is:

A)consumers.
B)producers.
C)recipients of government services.
D)Only the government benefits from that lost surplus.

Question 40

How much deadweight loss a tax causes depends on:

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)It can depend on all of these.

Question 41

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

A)raise more revenue.
B)cause less inefficiency.
C)not cause a very big reaction in terms of decreased quantity demanded.
D)All of these statements are true.

Question 42

The administrative burden of taxes is:

A)the same across all types of taxes.
B)smaller the smaller the amount of tax.
C)larger the smaller the amount of tax.
D)None of these statements is true.

Question 43

In general,more efficient taxes have:

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

Question 44

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)what portion of the revenues come from the government.
C)what portion of the revenues come from the producers versus the consumers.
D)the logistical costs associated with implementing a tax.

Question 45

The federal income tax _______________ compared to a state sales tax.

A)has a higher administrative burden
B)has a lower administrative burden
C)is less complex
D)is administered basically the same as

Question 46

To calculate tax revenue:

A)multiply the tax per unit by the number of units of the item being taxed.
B)divide total revenues by the tax per unit.
C)multiply total revenues by the tax per unit.
D)None of these will calculate tax revenue.

Question 47

For any given tax,imposing a tax in a market with a highly inelastic demand will:

A)generate higher revenues than a market with an elastic demand.
B)cause more deadweight loss than a market with an elastic demand.
C)Both of these statements are true.
D)Neither of these statements is true.

Question 48

A bridge that typically gets 1,000 cars per day is installing a new toll next week of $.50 per car.The tax revenues generated will be:

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

Question 49

The administrative burden of taxes is:

A)smallest with a lump-sum tax.
B)the same if the revenue generated is the same for any kind of tax.
C)smaller the larger the amount of the tax.
D)None of these statements is true.

Question 50

A new toll of $.50 per car is in place on a bridge,and 1,000 cars have used the bridge.Total tax revenues would be:

A)$500.
B)$2,000.
C)$1,000.
D)Impossible to answer without knowing what the quantity of cars using the bridge was before the toll was in place.

Question 51

When raising taxes,the quantity effect tells us that:

A)the government gets more revenue per units sold.
B)the higher tax rate causes fewer units to be sold.
C)the government gets less revenue per unit sold.
D)the higher tax rate causes more units to be supplied.

Question 52

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 53

The _____________ tells us when the government raises taxes,it gets more revenue per unit sold.

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

Question 54

The market for cigarettes likely has a:

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

Question 55

In general,the more complex the tax:

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

Question 56

When raising taxes,the price effect tells us that:

A)the government gets more revenue per units sold.
B)the higher tax rate causes fewer units to be sold.
C)the government gets less revenue per unit sold.
D)the higher tax rate causes more units to be supplied.

Question 57

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

A)causes less inefficiency than imposing them in price-elastic markets.
B)causes more inefficiency than imposing them in price-elastic markets.
C)causes no inefficiency.
D)All taxes of the same amount cause the same amount of inefficiency regardless of market elasticity.

Question 58

The federal income tax _____________ compared to a state sales tax.

A)has a higher administrative burden
B)is less efficient
C)is more complex
D)All of these statements are true.

Question 59

All taxes carry which of the following costs?

A)Time in creating procedures for collecting revenues
B)Enforcing tax payments
C)Managing collected funds
D)All taxes incur all of these costs.

Question 60

The logistical costs associated with implementing a tax are called the:

A)administrative burden.
B)deadweight loss.
C)total surplus.
D)tax revenue.

Question 61

If the ________ effect is greater than the ___________ effect,a tax cut will increase revenues.

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

Question 62

Most research suggests that the elasticity of the labor supply with respect to taxes is:

A)very low for most people.
B)very high for most people.
C)highly variable across people.
D)unpredictable in most settings.

Question 63

A $.50 tax on lemons currently generates $200 in revenues per day.If the tax were increased to $2,the revenues generated would drop to $70.This tells you that in this range of tax rates:

A)the quantity effect outweighs the price effect.
B)the quantity effect outweighs the income effect.
C)the price effect outweighs the quantity effect.
D)the price effect outweighs the income effect.

Question 64

The idea that people change their behavior in response to taxes is

A)uncontroversial among economists.
B)highly controversial among economists.
C)accepted by economists,but debated by those in Congress.
D)None of these statements is true.

Question 65

When tax rates fall,people tend to:

A)hardly increase the amount they work.
B)increase the amount they work a great deal.
C)hardly decrease the amount they work.
D)decrease the amount they work,although to what degree is still being researched.

Question 66

It is more likely at lower tax rates than higher tax rates that:

A)the quantity effect will outweigh the price effect.
B)the quantity effect will outweigh the income effect.
C)the price effect will outweigh the quantity effect.
D)the income effect will outweigh the price effect.

Question 67

When taxes are __________,tax revenues may __________.

A)increased;increase
B)decreased;decrease
C)increased;decrease
D)All of these statements are true.

Question 68

The __________ tells us when the government raises taxes,the higher tax rate causes fewer units to be sold.

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

Question 69

If the price effect outweighs the quantity effect,then a tax:

A)increase will increase revenue.
B)decrease will increase revenue.
C)increase will decrease revenue.
D)None of these statements is true.

Question 70

When considering different tax levels,the revenue-maximizing point will be reached more:

A)quickly the more elastic is demand.
B)slowly the more elastic is demand.
C)quickly the less elastic is demand.
D)None of these statements is necessarily true.

Question 71

The concept of incidence is used to:

A)describe who bears the burden of any sort of tax.
B)indicate which tax bears the bigger burden.
C)describe unexpected tax revenue generated.
D)None of these statements is true.

Question 72

In general,raising taxes:

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

Question 73

The question of how people's behavior changes in response to taxes is:

A)has been studied and is well known today.
B)the subject of much research.
C)was generally accepted and has recently come under examination again.
D)None of these statements is true.

Question 74

Research shows that people rearrange their income from different sources to reduce their:

A)tax burden.
B)tax rate.
C)necessary work hours.
D)total bill.

Question 75

The Laffer curve demonstrates that raising tax rates:

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

Question 76

The burden a tax places on buyers versus sellers is:

A)independent of which side is charged for the tax.
B)always split in half.
C)never shared.
D)None of these statements is true.

Question 77

The tax rate that maximizes the government's revenues:

A)is not the level that is "best" for the economy.
B)is the level that is "best" for the economy.
C)is 30 percent.
D)is 85 percent.

Question 78

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 79

Raising taxes:

A)always raises tax revenues.
B)always decreases tax revenues.
C)can sometimes decrease tax revenues.
D)None of these statements is true.

Question 80

We can describe who bears the burden of any sort of tax by using the concept of:

A)marginal burden.
B)incidence.
C)payee.
D)marginal tax rate.