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Exam 12: The Design of the Tax System

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Question 101

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The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?

A) 20 percent and 12 percent, respectively
B) 20 percent and 15 percent, respectively
C) 10 percent and 12 percent respectively
D) 10 percent and 15 percent respectively

E) None of the above
F) A) and B)

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Question 102

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Suppose that Deon places a $150 value on a new MP-3 player, and Juanita places a $140 value on it. The cost of the MP-3 player is $130. Suppose the government levies a $15 tax on MP-3 players, which raises the price to $145. What is the deadweight loss created by the tax?

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Before the tax, the total surplus was $3...

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Question 103

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If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Table 12-3 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. ​ ​ ​ -Refer to Table 12-3. For an individual with $200,000 in taxable income, which tax schedule has the lowest average tax rate?

Horizontal equity can be difficult to assess because it is difficult to compare the similarity of tax payers.

Social Security is an income support program, designed primarily to maintain the living standards of the poor.

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

Table 12-4 United States Income Tax Rates for a Single Individual, 2017 and 2018. ​ ​ ​ ​ -Refer to Table 12-4. Bill is a single person whose taxable income is $35,000 a year. What happened to his average tax rate between 2017 and 2018?

What are the two largest categories of federal tax receipts?

The federal healthcare spending program that specifically targets the poor is called

How can a proportional tax achieve vertical equity?

Sales taxes generate nearly 50% of the tax revenue for state and local governments.

The argument that each person should pay taxes according to how well the individual can shoulder the burden is called

List the three most important expenditure programs of the federal government. How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes more sense for the federal government to purchase "national defense" rather than state governments.

In the absence of taxes, Carlos would prefer to purchase a large fishing boat with a 75 hp motor. The government has recently decided to place a tax on boats with 75 hp motors or higher. If Carlos decides to purchase a smaller boat with a 50 hp motor as a result of the tax, which of the following statements is correct?

If we want to gauge the sacrifice made by a taxpayer, we should use the

A lump-sum tax minimizes deadweight loss.

Briefly describe the tradeoff between equity and efficiency of tax systems using a few examples.

Scenario 12-1 Max and Mark enjoy beer. Max places a $23 value on a bottle of beer, and Mark places a $18 value on it. The equilibrium price for a bottle of beer is $14. -Refer to Scenario 12-1. How much total consumer surplus do Max and Mark get when each purchases a bottle of beer?