Deck 14: Taxation and Income Distribution

Question 1

When marginal tax rates are constant,

A)the change in taxes paid is the same as the change in income.
B)the change in taxes paid is greater than the change in income.
C)the change in taxes paid is less than the change in income.
D)there are no taxes.
E)none of the above.

Answer 1

none of the above.

Question 2

In 2005,the top 1% of all income earners paid _________ percent of federal taxes.

A)1.0
B)4.1
C)20.6
D)27.6

Answer 2

27.6

Question 3

Partial equilibrium is

A)exactly like general equilibrium.
B)studying only the supply side of the market.
C)studying individual markets.
D)examining the demand side of the market.

Answer 3

studying individual markets.

Question 4

The tax-induced difference between the price paid by consumers and the price received by producers is

A)the tax difference.
B)the tax wedge.
C)the statutory incidence.
D)the supply side effect.

Question 5

A tax on suppliers will cause the supply curve to shift

A)up.
B)down.
C)right.
D)left.

Question 6

A tax on consumers will cause the demand curve to shift

A)right.
B)left.
C)up.
D)down.

Question 7

General equilibrium refers to

A)examining markets without specific information.
B)finding equilibrium from general information.
C)pricing goods at their shadow price.
D)all of the above.
E)none of the above.

Question 8

A demand curve that is perfectly inelastic is

A)horizontal.
B)vertical.
C)at a 45 degree angle.
D)parallel to the X-axis.

Question 9

In a general equilibrium model,a tax on a single factor in its use only in a particular sector can affect returns to all factors in all sectors.

Question 10

A unit tax is a fixed amount per unit of a commodity sold.

Question 11

A monopoly has ______ seller(s)in the market.

A)0
B)1
C)3
D)many

Question 12

Regardless of income level,when the ratio of taxes paid to income is constant then it is called

A)lump sum tax
B)marginal tax
C)progressive tax
D)proportional tax

Question 13

An ad valorem tax is

A)given as a proportion of the price.
B)Latin for "buyer beware."
C)identical to a unit tax.
D)computed using the "inverse taxation rule."

Question 14

Taxes

A)are mandatory payments.
B)are necessary for financing government expenditures.
C)do not directly relate to the benefit of government goods and services received.
D)are all of the above.

Question 15

Even with a tax,the price that consumers pay will be higher than what producers receive.

Question 16

Due to capitalization,the burden of future taxes may be borne by current owners of an inelastically?supplied,durable commodity such as land.

Question 17

Demand for cigarettes is

A)relatively elastic.
B)relatively inelastic.
C)increasing in the US.
D)greater among wealthier people.

Question 18

An industry where the capital-labor ratio is relatively high is characterized as

A)capital intensive.
B)labor intensive.
C)income intensive.
D)market intensive.

Question 19

An oligopoly has ______ sellers in the market.

A)0
B)1
C)3
D)many

Question 20

Statutory incidence of a tax deals with

A)the amount of revenue left over after taxes.
B)the amount of taxes paid after accounting for inflation.
C)the person(s)legally responsible for paying the tax.
D)the amount of tax revenue generated after a tax is imposed.

Question 21

Why is it the case that a commodity tax on goods like food and shelter is sometimes seen as being regressive?

Question 22

Tax wedge is the difference between tax induced price paid by customer and the tax amount

Question 23

Partial factor taxes are levied on an input in only some of its uses.

Question 24

Refer to Figure 14.2 in your textbook.Suppose the original before-tax demand curve for CD players is P = 100 - 2Q_d.Suppose further that supply is P = 5 + 3Q_s.Now suppose a $5 unit tax is imposed on consumers.
(A)What is the before?tax equilibrium price and quantity?
(B)What is the after?tax equilibrium price and quantity?
(C)How much tax revenue is raised?

Question 25

Why is it the case that taxes in one market can have impacts on supply and demand in others and should policy makers take this into account when setting taxes?

Question 26

Suppose there is a market that has market demand characterized as X = 30 - P/3.
Suppose further that market supply can be written as X = P/2 - 2.
(A)Find the equilibrium price and quantity in this market.
(B)If a unit tax of $16 is imposed on good X,what are the equilibrium price,quantity,and tax revenue in the market?
(C)Suppose an ad valorem tax of 30 percent is imposed on good X.The after-tax demand equation would be X = 30 - P/2.Now find the equilibrium price,quantity,and tax revenue in the market.
(D)What can be said about the amount of tax revenue generated under each taxing scheme,and why?

Question 27

Ad valorem taxes create tax wedges just like unit taxes.

Question 28

Suppose that demand is perfectly inelastic.Supply is normal and upward sloping.What is the economic incidence of a unit tax placed on suppliers?

Question 29

Unit taxes cause shifts,while ad valorem taxes cause pivots.

Question 30

Consider a monopolist who has a total cost curve of: TC=7X+(1/2)X2.The market demand equation is Xd=386-(1/2)P.

A)What are the equilibrium quantity,equilibrium price,and profits in this market?
B)Suppose that a unit tax of $1 is placed on the monopolist.What happens to the equilibrium quantity,equilibrium price,and profits? How much tax revenue does the government generate?
C)Suppose that the same unit tax of $1 is placed on consumers.What happens to the equilibrium quantity,equilibrium price,and profits? How much tax revenue does the government generate?
D)What can be said about the taxes?

Question 31

Marginal tax rates supply reliable measures of tax progressiveness.

Question 32

In the press,there has been a considerable amount of attention given to the notion of corporations being taxed.Explain how it is that a tax on a business could be borne entirely by consumers.

Question 33

A lump sum tax is one for which the individual's liability does not depend on behavior.

Question 34

From Question 18 above,calculate the economic incidence incurred by producers and the economic incidence incurred by consumers.