Question 1

If a tax is efficient,it will necessarily be equitable.

Accepted Answer

Efficiency and equity are two different concepts in taxation. An efficient tax system can collect revenue with minimal economic impact, while an equitable tax system redistributes income or wealth to promote fairness. It is possible for a tax to be efficient but not equitable, such as a flat tax that taxes individuals at the same rate regardless of income. Therefore, the statement is false.

Question 2

People who are risk neutral are more likely to engage in tax evasion than people who are risk loving.

Accepted Answer

The answer of People who are risk neutral are more...

Question 3

One of the conditions mentioned in our formulation of the Ramsey Rule is that goods be unrelated in consumption.Do you think this is a reasonable assumption? If this condition does not hold,will the Ramsey Rule still work?

Accepted Answer

The answer of One of the conditions mentioned in our...

Question 4

Changing tax regimes can sometimes be difficult and lead to inequities.

Accepted Answer

Changing tax regimes can lead to unintended consequences such as some groups receiving more benefits than others or some individuals paying more taxes. It can also be challenging to accurately predict the impact of the changes on the economy and taxpayers, making it uncertain whether the intended goals will be achieved. Therefore, changing tax regimes can often be difficult and result in inequities.

Question 5

Working fewer hours to reduce your tax burden is tax evasion.

Accepted Answer

Choosing to work fewer hours to reduce your income and consequently your tax burden is a legal way to manage taxes, not tax evasion. Tax evasion involves illegal methods to avoid paying taxes.

Question 6

Income is a poor measure of relative position when attempting to determine horizontal equity.

Accepted Answer

Horizontal equity is concerned with treating equals equally. Income alone cannot determine an individual's relative position as it does not take into consideration other factors that may affect their ability to contribute or receive benefits. For example, two people may have the same income, but one may have more expenses or dependents, making their financial position different. Therefore, income should not be the sole measure of horizontal equity.

Question 7

In 2009,President Obama proposed raising the income tax on those making over $250,000 per year.Discuss the merits of this plan.

Accepted Answer

The answer of In 2009,President Obama proposed raising the income...

Question 8

Consider a monopolist that has a total cost curve of TC = 110Q - (0.25)Q².The market demand equation is Q_d = 155 - P. (A)What are the total revenue,marginal revenue,marginal cost,equilibrium quantity,equilibrium price,and profits for the monopolist in this market? (B)Suppose the government instructs the firm to produce using average cost pricing.What are the equilibrium quantity,equilibrium price,and profits? (C)Suppose further that the government wants the firm to produce where supply equals demand.What will be the equilibrium quantity,equilibrium price,and profits?

Accepted Answer

The answer of Consider a monopolist that has a total...

Question 9

Suppose the demand for good X can be represented by the following equation: X_d = 22 - (1/4)P.Furthermore,suppose that the demand for good Y can be represented by Y_d = 50 - P. (A)Find the elasticity of demand for both good X and good Y when the price is $10. (B)Suppose that an ad valorem tax is placed on both goods.Good Y is taxed at a rate of 5%.To ensure that the inverse elasticity rule holds,what must be the rate at which good X is taxed? Reminder: Elasticity at a given price is found using the formula ε = -(1/S)(P/X),where S is the slope of the demand curve,X is the quantity demanded,and P is the price.

Accepted Answer

The answer of Suppose the demand for good X can...

Question 10

Natural monopolies occur when a single or a few firms can take advantage of economies of scale and supply the entire industry output.

Accepted Answer

Natural monopolies occur due to high fixed costs and low marginal costs. As the firm increases its output, the average cost per unit decreases due to economies of scale. Therefore, it becomes difficult for new firms to enter the market and compete with the existing firm, which prohibits competition and creates a monopoly.

Question 11

Optimal user fees are paid only by the consumers of the good or service produced.

Accepted Answer

Optimal user fees are designed in a way that the consumers who benefit from the good or service produced pay for it. This is because such fees are considered efficient and fair, as they ensure that those who use the service or enjoy the benefits of the good pay for it.

Question 12

Ms.Mahmood is a retired schoolteacher whose pension income is $25,000 per year.She also receives Social Security income of $5,000 per year.Mr.Little is a young man who does not choose to work.He inherited $600,000 from his Aunt Clara,which he invested in a bond fund that provides a 5 percent return,generating $30,000 income per year.If we are concerned about the equity of taxation,should we consider these two people as equals and tax them equally? Explain why or why not.

Accepted Answer

The answer of Ms.Mahmood is a retired schoolteacher whose pension...

Question 13

It is easier to under-report income in industries that deal with a lot of cash.

Accepted Answer

Industries that deal with cash transactions, such as restaurants or small retail shops, have a higher tendency for under-reporting income as there is less documentation and it is easier to hide cash transactions. Therefore, it is true that it is easier to under-report income in industries dealing with a lot of cash.

Quiz 16: Efficient and Equitable Taxation