Question 1

The efficiency-loss ratio relative to tax is:

Accepted Answer

A)   the deadweight loss less the tax revenue.
B)   the deadweight loss divided by the tax revenue reduced by one.
C)   the excess burden divided by the tax revenue.
D)   None of the above.E) B) and C)
F) A) and B)

Question 2

A lump-sum tax only results in income effects.

Accepted Answer

A) True 
 B)False

Question 3

A lump-sum tax:

Accepted Answer

A)   distorts market prices so that they do not simultaneously equal MSB and MSC.
B)   can result in price changes but does not prevent prices from simultaneously being equal to MSB and MSC.
C)   results in substitution effects that change prices.
D)   results in both substitution effects and income effects that change prices.E) B) and C)
F) A) and D)

Question 4

If the price elasticity of supply of labor is equal to 0.5 and the price elasticity of demand for labor is -2, then which of the following is likely to result from a tax on labor earnings

Accepted Answer

A)   The tax will be fully borne by workers.
B)   Some of the tax will be shifted to employers as market equilibrium wages increase.
C)   Market equilibrium wages will decline.
D)   There will be no effect on market equilibrium wages.E) A) and B)
F) None of the above

Question 5

The elasticity of supply of land is zero. A tax on land results only in an income effect to landlords. Then it follows that a 10-percent tax on land rents will:

Accepted Answer

A)   have a positive excess burden.
B)   be shifted forward to tenants.
C)   be paid entirely by landlords.
D)   have zero excess burden.
E)   both c and dF) C) and D)
G) B) and E) E

Question 6

Housing construction is generally believed to be an industry of constant costs. In the long run, which of the following is true if a $10 per square foot tax on housing construction is collected directly from builders

Accepted Answer

A)   The incidence of the tax will be borne by builders.
B)   The excess burden of the tax will be zero.
C)   The quantity of new construction supplied will be unaffected.
D)   The tax will be fully shifted to buyers of new construction.E) B) and C)
F) C) and D) D

Question 7

A lump-sum tax results in both income and substitution effects.

Accepted Answer

A) True 
 B)False

Question 8

A payroll tax results in a difference between the gross wages paid by employers and the net wages received by workers.

Accepted Answer

A) True 
 B)False  True

Question 9

Most studies of tax incidence assume that taxes on labor income and other input services are borne entirely by the workers and other input owners that supply the services. This implies that the:

Accepted Answer

A)   supply of those input services is very elastic.
B)   supply of those input services is of unitary elasticity.
C)   supply of those input services is perfectly inelastic.
D)   demand for those input services is perfectly elastic.E) A) and B)
F) All of the above

Question 10

Explain why the excess burden of a lump-sum tax will always be zero. Why is the payroll tax not a lump-sum tax Show how a payroll tax affects the wages paid by employers and received by workers, assuming that it is withheld from their paychecks. Assuming that the supply of labor is not perfectly inelastic, show how the excess burden can be measured.

Accepted Answer

The answer of Explain why the excess burden of a...

Question 11

Lump-sum taxes do not prevent prices from equaling the marginal social cost and benefit of any goods and services.

Accepted Answer

A) True 
 B)False

Question 12

The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the tax,

Accepted Answer

A)   the price received by sellers will fall by $400.
B)   the price paid by buyers, including the tax, will increase by $400.
C)   the quantity of cars sold per year will be unchanged.
D)   the excess burden of the tax will be zero.
E)   both c and dF) A) and E)
G) A) and D)

Question 13

Suppose an economy is comprised of only two markets: one for food and the other for housing. A tax on food used to finance transfer payments is likely to:

Accepted Answer

A)   decrease the price of food.
B)   increase the price of housing.
C)   decrease the price of housing.
D)   have no effect on either the price of food or housing.E) B) and C)
F) A) and B)

Question 14

If a per unit tax is imposed, but the quantity supplied and demanded does not change then:

Accepted Answer

A)   the demand is perfectly inelastic.
B)   the supply is perfectly inelastic.
C)   there is no deadweight loss.
D)   All of the above.E) None of the above
F) A) and B)

Question 15

An income tax is an example of a price-distorting tax.

Accepted Answer

A) True 
 B)False

Question 16

The excess burden of a tax on interest income is $5 billion per year. Total interest income per year is $50 billion. The tax currently collects $15 billion in revenue per year. The efficiency-loss ratio of the tax is therefore 0.33.

Accepted Answer

A) True 
 B)False

Question 17

If a $10 per unit tax is levied on the output of a monopolist, more of that tax will be shifted to consumers than would be the case if the same good were produced by a competitive industry.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is true about a lump-sum tax

Accepted Answer

A)   It prevents efficiency from being attained in competitive markets.
B)   It causes substitution effects.
C)   It causes income effects.
D)   It causes both income effects and substitution effects.E) None of the above
F) A) and B)

Question 19

Currently, a 10-cent per gallon tax is levied on gasoline consumption. The tax is increased to 20 cents per gallon. The excess burden of the tax will:

Accepted Answer

A)   remain the same.
B)   double.
C)   increase four times.
D)   decline.E) B) and D)
F) C) and D)

Question 20

Lump-sum taxes can vary in amount based on income level.

Accepted Answer

A) True 
 B)False

Exam 11: Taxation, Prices, Efficiency, and the Distribution of Income

The efficiency-loss ratio relative to tax is:

Correct Answer
verified

A lump-sum tax only results in income effects.

Correct Answer
verified

A lump-sum tax:

Correct Answer
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If the price elasticity of supply of labor is equal to 0.5 and the price elasticity of demand for labor is -2, then which of the following is likely to result from a tax on labor earnings

Correct Answer
verified

The elasticity of supply of land is zero. A tax on land results only in an income effect to landlords. Then it follows that a 10-percent tax on land rents will:

Correct Answer
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E

Housing construction is generally believed to be an industry of constant costs. In the long run, which of the following is true if a $10 per square foot tax on housing construction is collected directly from builders

Correct Answer
verified
D

A lump-sum tax results in both income and substitution effects.

Correct Answer
verified

A payroll tax results in a difference between the gross wages paid by employers and the net wages received by workers.

Correct Answer
verified
True

Most studies of tax incidence assume that taxes on labor income and other input services are borne entirely by the workers and other input owners that supply the services. This implies that the:

Correct Answer
verified

Correct Answer
verified

Lump-sum taxes do not prevent prices from equaling the marginal social cost and benefit of any goods and services.

Correct Answer
verified

The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the tax,

Correct Answer
verified

Suppose an economy is comprised of only two markets: one for food and the other for housing. A tax on food used to finance transfer payments is likely to:

Correct Answer
verified

If a per unit tax is imposed, but the quantity supplied and demanded does not change then:

Correct Answer
verified

An income tax is an example of a price-distorting tax.

Correct Answer
verified

The excess burden of a tax on interest income is $5 billion per year. Total interest income per year is $50 billion. The tax currently collects $15 billion in revenue per year. The efficiency-loss ratio of the tax is therefore 0.33.

Correct Answer
verified

If a $10 per unit tax is levied on the output of a monopolist, more of that tax will be shifted to consumers than would be the case if the same good were produced by a competitive industry.

Correct Answer
verified

Which of the following is true about a lump-sum tax

Correct Answer
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Currently, a 10-cent per gallon tax is levied on gasoline consumption. The tax is increased to 20 cents per gallon. The excess burden of the tax will:

Correct Answer
verified

Lump-sum taxes can vary in amount based on income level.

Correct Answer
verified

Exam 11: Taxation, Prices, Efficiency, and the Distribution of Income

The efficiency-loss ratio relative to tax is:

Correct AnswerverifiedShow Answer

A lump-sum tax only results in income effects.

Correct AnswerverifiedShow Answer

A lump-sum tax:

Correct AnswerverifiedShow Answer

If the price elasticity of supply of labor is equal to 0.5 and the price elasticity of demand for labor is -2, then which of the following is likely to result from a tax on labor earnings

Correct AnswerverifiedShow Answer

The elasticity of supply of land is zero. A tax on land results only in an income effect to landlords. Then it follows that a 10-percent tax on land rents will:

Correct AnswerverifiedE

Housing construction is generally believed to be an industry of constant costs. In the long run, which of the following is true if a $10 per square foot tax on housing construction is collected directly from builders

Correct AnswerverifiedD

A lump-sum tax results in both income and substitution effects.

Correct AnswerverifiedShow Answer

A payroll tax results in a difference between the gross wages paid by employers and the net wages received by workers.

Correct AnswerverifiedTrue

Most studies of tax incidence assume that taxes on labor income and other input services are borne entirely by the workers and other input owners that supply the services. This implies that the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Lump-sum taxes do not prevent prices from equaling the marginal social cost and benefit of any goods and services.

Correct AnswerverifiedShow Answer

The supply of new cars is perfectly elastic. A $400 per car tax is levied on buyers. As a result of the tax,

Correct AnswerverifiedShow Answer

Suppose an economy is comprised of only two markets: one for food and the other for housing. A tax on food used to finance transfer payments is likely to:

Correct AnswerverifiedShow Answer

If a per unit tax is imposed, but the quantity supplied and demanded does not change then:

Correct AnswerverifiedShow Answer

An income tax is an example of a price-distorting tax.

Correct AnswerverifiedShow Answer

The excess burden of a tax on interest income is $5 billion per year. Total interest income per year is $50 billion. The tax currently collects $15 billion in revenue per year. The efficiency-loss ratio of the tax is therefore 0.33.

Correct AnswerverifiedShow Answer

If a $10 per unit tax is levied on the output of a monopolist, more of that tax will be shifted to consumers than would be the case if the same good were produced by a competitive industry.

Correct AnswerverifiedShow Answer

Which of the following is true about a lump-sum tax

Correct AnswerverifiedShow Answer

Currently, a 10-cent per gallon tax is levied on gasoline consumption. The tax is increased to 20 cents per gallon. The excess burden of the tax will:

Correct AnswerverifiedShow Answer

Lump-sum taxes can vary in amount based on income level.

Correct AnswerverifiedShow Answer

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E

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D

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True

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