Question 1

An optimal tax is one that minimizes the

Accepted Answer

An optimal tax is one that minimizes the total deadweight loss from the tax. This means that the tax should be set at a level where the revenue generated is high enough to meet government spending needs, but not so high that people significantly alter their behavior in response to the tax, resulting in a loss of economic welfare. By minimizing deadweight loss, an optimal tax maximizes economic efficiency.

Question 2

A tax system with little deadweight loss and a small administrative burden would be described as

Accepted Answer

A tax system with little deadweight loss and a small administrative burden is considered efficient. Efficient tax systems minimize distortions in economic behavior, meaning that they do not create significant disincentives for people to work, save, or invest. Additionally, an efficient system requires little administrative effort and imposes few compliance costs on taxpayers. While equity, communism, and capitalism may be desirable in different contexts, they are not directly related to the efficiency of a tax system.

Question 3

Zoe,Chloe,and Brody each like to read novels.The current bestseller costs $11.Zoe values it at $16,Chloe at $14,and Brody at $12.Suppose that if the government taxes books at $2 each,the selling price will rise to $13.A consequence of the tax is that

Accepted Answer

The answer of Zoe,Chloe,and Brody each like to read novels.The...

Question 4

Taxes can create deadweight losses because they

Accepted Answer

The answer of Taxes can create deadweight losses because they
...

Question 5

When taxes are imposed on a commodity,

Accepted Answer

When taxes are imposed on a commodity, some consumers may alter their consumption by not purchasing the taxed commodity. This results in a decrease in the quantity demanded and a potential deadweight loss. The tax revenue will not necessarily rise by the amount of the tax multiplied by the before-tax level of consumption as it may depend on the price elasticity of demand and supply. Additionally, taxes do distort incentives as they change the relative prices of goods and services, leading to consumer and producer behavioral changes.

Question 6

Deadweight losses occur in markets in which

Accepted Answer

Deadweight losses occur when the government imposes a tax on a market, causing a reduction in efficiency and allocative inefficiency. The tax increases the price paid by consumers, decreases the price received by producers, and reduces the quantity sold in the market, resulting in a loss of consumer and producer surplus. This loss is known as a deadweight loss.

Question 7

Which of the following is a characteristic of a more efficient tax system?

Accepted Answer

A more efficient tax system would minimize deadweight loss, raise the same amount of revenue at a lower cost, and minimize administrative burdens. By achieving these goals, the tax system would be able to collect the necessary revenue while causing the least amount of economic distortions and minimizing compliance costs.

Question 8

Deadweight losses represent the

Accepted Answer

Deadweight losses are the inefficiencies that arise from taxes. They occur when the tax reduces the quantity of the good that is bought and sold below the level that would occur in the absence of the tax, thus reducing both consumer surplus and producer surplus. The deadweight loss represents the loss of welfare or value to society that results from this inefficiency.

Question 9

One reason that deadweight losses are so difficult to avoid is that

Accepted Answer

Deadweight losses occur when taxes change the behavior of people and result in decreased economic efficiency. As taxes affect the decisions that people make, it becomes difficult to avoid deadweight losses.

Question 10

Taxes create deadweight loss when they

Accepted Answer

Deadweight loss occurs when taxes distort behavior and cause consumers and producers to change their behavior in a way that reduces total surplus in the market. This can happen when taxes create incentives for people to consume less of the taxed goods or to produce less of them. Deadweight loss does not necessarily depend on the magnitude of the tax or whether it raises sufficient government revenue.

Question 11

Zoe,Chloe,and Brody each like to read novels.The current mystery thriller costs $10.Zoe values it at $15,Chloe at $13,and Brody at $11.Suppose that if the government taxes books at 50 cents each the selling price rises to $10.50.A consequence of the tax is that

Accepted Answer

The answer of Zoe,Chloe,and Brody each like to read novels.The...

Question 12

Because taxes distort incentives,they typically result in

Accepted Answer

Taxes distort incentives and lead to deadweight losses, as well as reductions in consumer and producer surplus. Therefore, all of the above choices are correct.

Question 13

Taxes create deadweight losses because they

Accepted Answer

Taxes distort incentives for individuals and businesses, creating deadweight losses. These losses occur because taxes discourage people from engaging in certain activities or making certain transactions, causing them to allocate resources inefficiently.

Question 14

The deadweight loss of a tax is

Accepted Answer

The deadweight loss of a tax is the reduction in economic welfare of taxpayers that exceeds the revenue raised by the government. It represents the inefficiency created by the tax, such as the distortion of market behavior and reduced output, and is an example of allocative inefficiency. It represents a loss of resources to society that could have been used elsewhere, and therefore reduces overall economic welfare.

Question 15

In the absence of taxes,Ashley would prefer to purchase a large sport utility vehicle (SUV).The government has recently decided to place a $10,000 nuisance tax on SUVs.If Ashley decides to purchase a small economy car as a result of the tax,which of the following statements is correct?

Accepted Answer

Ashley's decision to purchase a smaller car instead of an SUV shows that she is worse off as a result of the tax. Her loss of welfare contributes to the deadweight loss of the tax. Deadweight loss is the loss of consumer and producer surplus that occurs when the quantity of a good that is bought and sold is below the efficient equilibrium quantity. The magnitude of the deadweight loss is not dependent on the revenues from the tax, and other people who choose to purchase SUVs may also incur deadweight losses.

Question 16

The resources that a taxpayer devotes to complying with the tax laws are a type of

Accepted Answer

The resources that a taxpayer devotes to complying with the tax laws are considered deadweight loss because they represent a loss of economic efficiency. These resources could have been used for other productive activities, but instead they are diverted towards compliance costs, which do not result in any productive output.

Question 17

An efficient tax system is one that (i)
Maximizes tax revenues.
(ii)
Minimizes deadweight losses from taxes.
(iii)
Minimizes administrative burdens from taxes.
(iv)
Promotes equity across taxpayers.

Accepted Answer

The answer of An efficient tax system is one that...

Question 18

An efficient tax system is one that imposes small

Accepted Answer

An efficient tax system imposes small deadweight losses and administrative burdens. Deadweight loss refers to the economic inefficiency that occurs when the tax reduces the value that consumers and producers place on the goods and services. Administrative burdens refer to the costs of compliance and the administrative expenses incurred by the government in collecting the tax. A tax system that minimizes both deadweight losses and administrative burdens is considered efficient.

Question 19

Suppose the country of Mankiwland has a new king,King Gregory.For the purpose of efficiency King Gregory's chief economic advisor would encourage him to design his country's tax system to minimize (i)
Deadweight losses from taxes.
(ii)
Administrative burdens from taxes.
(iii)
The tax payments themselves.
(iv)
Government expenditures to correct for market failures.

Accepted Answer

King Gregory's chief economic advisor would encourage him to design his country's tax system to minimize deadweight losses from taxes and administrative burdens from taxes only. This is because minimizing tax-induced distortions in the market and reducing the costs of tax compliance and enforcement would likely lead to greater economic efficiency and growth without sacrificing too much government revenue. Minimizing tax payments themselves or government expenditures to correct market failures may not necessarily be the most desirable goal for a tax system, as these objectives may conflict with the need to fund essential public goods and services and to redistribute income and wealth to address societal needs and equity concerns.

Question 20

Deadweight losses are associated with

Accepted Answer

Deadweight losses are associated with taxes that distort the incentives that people face. When taxes are imposed on certain goods or activities, it changes the behavior of both consumers and producers, and in turn, affects the overall efficiency of the market. This produces a deadweight loss, which is the loss of economic welfare that exceeds the revenue collected by the government through the tax. Such losses occur because taxes alter behavior, reducing economic activity and creating inefficiencies in the allocation of resources.

Quiz 12: The Design of the Tax System