Deck 10: Positive Principles of Taxation

Question 1

Legislators are indifferent about placing a unit tax on the suppliers of a good or the demanders.If a tax is placed on the suppliers of the good _____

A)suppliers will pay the entire tax
B)suppliers will pay more than if the tax were initially placed on the demanders
C)suppliers will pay exactly what they would pay if the tax were initially placed on the demanders
D)suppliers will pay less than if the tax were initially placed on the demanders

Answer 1

C

Question 2

If the supply curve is perfectly inelastic,_____

A)any tax will be entirely born by suppliers
B)any tax will be entirely born by demanders
C)any tax will be split by demanders and suppliers
D)the tax incidence depends upon the elasticity of the demand curve

Answer 2

A

Question 3

When a unit tax is placed on suppliers they are generally able to _____.

A)lobby to get the tax repealed
B)shift the tax payment to the demanders
C)shift part of the tax burden to the demanders in the form of a secondary tax
D)shift part of the tax burden to the demanders in the form of a higher price

Answer 3

D

Question 4

If the demand curve is perfectly inelastic,_____.

A)suppliers will bear the entire burden of any tax
B)demanders will bear the entire burden of any tax
C)suppliers and demanders will split the burden of any tax
D)the actual burden of the tax depends upon who is legally required to pay the tax

Question 5

The more elastic the supply curve,_____.

A)the greater the tax evasion
B)the more suppliers have to bear the tax burden
C)the more suppliers can shift the tax burden to demanders
D)the more demanders shift the supply curve

Question 6

Excise taxes _____.

A)can be ad valorem taxes
B)can be unit taxes
C)are taxes placed on particular types of goods
D)all of the above
E)b and c

Question 7

When a unit tax is placed on suppliers _____.

A)it will have the same effect as a twice as large excise tax placed on demanders
B)it will have the same effect as a similar unit tax placed on demanders
C)they will be able to shift the entire tax onto their resource suppliers
D)they will be able to force demanders to pay the tax to the government

Question 8

Since demanders of a good are concerned with the total price they have to pay for a good,a unit tax on the good will _____.

A)shift the supply curve downward by the entire amount of the tax
B)shift the supply curve upward by the entire amount of the tax
C)shift the demand curve downward by the entire amount of the tax
D)shift the demand curve upward by the entire amount of the tax

Question 9

Ad valorem taxes _____.

A)are based on the dollar value of the good
B)are based on the number of units sold
C)are taxes on advertising
D)b and c

Question 10

When a unit tax is placed on demanders ____.

A)it will be paid entirely by demanders if the demand curve is elastic
B)it will have the same effect as a similar unit tax placed on suppliers
C)they will pay a larger share than if it was initially placed on suppliers
D)they will pay a smaller share than if it was initially placed on suppliers

Question 11

The ratio of the burden of the tax borne by demanders to the burden of the tax borne by suppliers will be equal to_____.

A)the square of the slope of the demand curve
B)the elasticity of demand times the elasticity of supply
C)the ratio of the absolute values of the slopes of the demand curve and the supply curve
D)the sum of the elasticities of the inverse demand curve and the supply curve

Question 12

The more willing suppliers are to substitute away from a taxed good,_____.

A)the larger the proportion of the tax paid by demanders
B)the smaller the proportion of the tax paid by demanders
C)the greater the increase in output will be
D)a and c

Question 13

The fact that the Social Security tax is shared evenly between employers and employees _____.

A)has nothing to do with who bears the actual burden of the tax
B)has everything to do with who bears the actual burden of the tax
C)is important to who bears the actual burden of the tax if the supply curve is perfectly inelastic
D)is important to who bears the actual burden of the tax if the demand curve is perfectly inelastic

Question 14

_____occurs when the burden of a tax statutorily placed on one party is borne by another party.

A)Tax shifting
B)Tax evasion
C)Tax avoidance
D)Tax amnesty

Question 15

Assume a unit tax of $4 is placed on suppliers.They are able to pass along some of the tax to suppliers as evidenced by prices rising from $5 per unit to $7 per unit.Output declines from 10 units to 8 units.What is the ratio of the demander's share of the tax burden to the suppliers?

A)2.5
B)2.0
C)1.5
D)1.0

Question 16

A fifty cent tax imposed on a pack of cigarettes is _____.

A)a unit tax
B)an ad valorem tax
C)a retail sales tax
D)relatively cheap

Question 17

The welfare cost of taxation _____.

A)occurs because individuals try to avoid the tax to some degree
B)is not the same thing as the excess burden of taxation
C)occurs because individuals refuse to pay the tax
D)cannot,in theory,be calculated

Question 18

An inelastic supply schedule means that _____.

A)suppliers are unwilling to substitute away from producing the good
B)demanders are unwilling to substitute away from consuming the good
C)demanders are unwilling to substitute towards consuming the good
D)suppliers are unwilling to shift any portion of an imposed tax onto demanders

Question 19

An analysis of the incidence of a unit tax on suppliers versus a unit tax on demanders shows us that the _____ of a tax may be different from the _____ of a tax.

A)actual burden;distribution
B)payment;distribution
C)amount;incidence
D)actual burden;legal assignment

Question 20

The more elastic the demand curve,_____.

A)the smaller the proportion of a tax paid by the suppliers
B)the smaller the proportion of a tax paid by the demanders
C)the more elastic the supply curve
D)the more the tax can be shifted to demanders

Question 21

The welfare cost of taxation is identical to the excess burden of taxation.

Question 22

The excess burden of taxation will _____ when the demand curve is more elastic.

A)not change
B)be higher
C)be lower
D)be zero

Question 23

A unit tax placed on demanders causes the supply curve to shift downward,shifting part of the tax burden to supplier in the form of lower prices and quantity.

Question 24

The ratio of the burden of the tax borne by demanders to the burden born by suppliers will be equal to the sum of the absolute values of the slopes of the demand curve and the supply curve.

Question 25

Lump sum taxes _____.

A)are difficult to model theoretically but easy to apply
B)have a small excess burden
C)have no welfare cost
D)require perfectly elastic demand curves

Question 26

Taxpayers would be better off if a tax could just raise revenue without ______.

A)altering the relative prices they face
B)altering their preferences for a good
C)tax shifting
D)any income effects

Question 27

When a unit tax is placed on a supplier they are generally able to shift a portion of the burden to demanders by raising the prices paid by demanders.

Question 28

As a tax increases,the excess burden from increasing the tax grows faster than the corresponding tax revenue.This is the impetus behind _____.

A)lump sum taxes
B)the excess burden rule
C)the Ramsey rule
D)placing taxes only on the most inelastic goods

Question 29

An income tax will have zero welfare cost when an individuals labor supply curve is perfectly inelastic _____.

A)always
B)never
C)only if the income effect is zero
D)only if the substitution effect is zero

Question 30

The fact that individuals substitute away from a taxed activity creates _____.

A)the excess burden of taxation
B)the welfare cost of taxation
C)deadweight loss of taxation
D)all of the above
E)a and b

Question 31

Which of the following is an advantage of earmarked taxes?

A)They are flexible.
B)They never lead to overproduction.
C)They make it more difficult for politicians to alter the expenditure mix away from their preferences.
D)They make it easier for politicians to alter the expenditure mix to achieve economic efficiency.

Question 32

Changing the legal assignment of a tax will not change its incidence.

Question 33

The more inelastic the schedule,the greater the percentage of the tax that is borne on the other side of the market.

Question 34

Ad valorem taxes are based on the number of units sold.

Question 35

A complete accounting of the costs of the tax system would not include _____.

A)compliance costs
B)legislative costs
C)administrative costs
D)political costs

Question 36

The excess burden of taxation can be minimized by _____.

A)placing taxes on goods with elastic demand schedules
B)placing taxes on goods with inelastic demand schedules
C)placing taxes on goods with elastic supply schedules
D)placing taxes on goods with inelastic supply schedule
E)b and d

Question 37

The tax with the minimum excess burden of taxation is most desirable from an efficiency standpoint because _____.

A)it suggest that people substituted away from the tax by a considerable amount
B)it minimizes tax shifting
C)it produces the least social cost per dollar of revenue raised
D)it will raise the most revenue for government

Question 38

An inelastic supply schedule means that suppliers are unable to substitute away from producing a good in response to a tax.

Question 39

Consider that you are a government economist asked by a state legislature to apply excise taxes to a variety of goods sold in your state.You know you want to minimize the excess burden of taxation so you apply the Ramsey Rule.This means that you tell the legislature to _____.

A)set the tax rates proportional to the elasticities of demand for each good
B)set the tax rates in inverse proportion to the elasticities of demand for each good
C)set the tax rates proportional to the elasticities of supply for each good
D)set the tax rates in inverse proportion to the elasticities of supply for each good

Question 40

Earmarked taxes _____.

A)are taxes whose revenues are dedicated to a particular program
B)are taxes whose revenue is given to a specific group
C)are income taxes that minimize the decline in labor supply
D)are taxes that go into the general fund

Question 41

What makes a tax "efficient"? Describe the efficiency properties of a lump sum tax.Under what conditions might a regular unit tax approximate a lump-sum tax? List one trade-off facing policymakers in attempting to minimized the excess burden of taxation.

Question 42

As long as there is some substitution effect in response to a change in the relative price of a good,there will be an excess burden from a tax.

Question 43

Suppose a supplier of a good has a perfectly inelastic supply curve.Now assume a unit tax is placed on the good and that the demanders of the good are legally required to pay it.Who will bear the burden of the tax,the supplier or the demanders or some combination? Draw a picture in explaining your answer.

Question 44

If taxes are already high,the lower the marginal excess burden of any additional taxes will be.

Question 45

List four costs of taxation (above the tax itself)and provide a description of each.

Question 46

What is the deadweight loss of taxation? Assume a goods market with elastic demand and supply curves.Now impose a unit tax on suppliers.Show the deadweight loss from the tax in a graph.

Question 47

While taxing inelastic goods minimizes social costs from taxation,it frequently conflicts with traditional notions of fairness.

Question 48

Suppose automobile salesmen are required to pay a $1000 tax per car sold.Is it likely that the auto salesmen will bear the entire burden of this tax? Why or why not? Would it matter if the demanders were legally required to pay the tax? Explain in detail your answer.

Question 49

Social Security is an earmarked tax.

Question 50

Money spent on lobbying to eliminate the estate tax is not a cost of the tax system.