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Exam 12: The Design of the Tax System

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Question 21

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The flypaper theory of tax incidence

A) suggests that the burden of a tax lands solely on the person from whom the taxes are collected.
B) assumes that most taxes should be "stuck on" the rich.
C) says that once a tax has been imposed, there is little chance of it changing, so in essence people are stuck with it.
D) suggests that taxes are like flies because they are everywhere and will never go away.

E) B) and C)
F) A) and C)

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Question 22

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A person's marginal tax rate equals

A) her tax obligation divided by her average tax rate.
B) the increase in taxes she would pay as a percentage of the rise in her income.
C) her tax obligation divided by her income.
D) the increase in taxes if her average tax rate were to rise by 1percent.

E) All of the above
F) A) and D)

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Question 23

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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. Suppose the government levies a tax of $6 on each bottle of beer, and the equilibrium price of a bottle of beer increases to $20. Because total consumer surplus has

Define the marginal tax rate.

Table 12-9 $\begin{array} { | l | l | } \hline \text { Income } & \text { Amount of Tax } \\\hline \$ 50,000 & \$ 5,000 \\\hline \$ 60,000 & \$ 5,500 \\\hline \$ 70,000 & \$ 6,000 \\\hline\end{array}$ -Refer to Table 12-9. Would the tax system be justified due to the benefits principle?

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. Suppose the government levies a tax of $6 on each bottle of beer, and the equilibrium price of a bottle of beer increases to $20. How much tax revenue is collected?

In the United States, all families pay the same proportion of their income in taxes.

Many economists believe that the U.S. tax system would be made more efficient if the basis of taxation were changed so that people paid taxes, more so than they do now, based on their

The equity of a tax system concerns whether the tax burden is distributed equally among the population.

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Suppose Ron is willing to pay $200 to see a professional basketball game and Felix is willing to pay $150. Assume the normal price of a ticket is $125. The local government decides to impose a $35/ticket surcharge to raise revenue, causing the ticket price to rise to $160.The resulting deadweight loss is

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Deadweight losses and administrative burdens are key factors considered when determining the efficiency of the tax system.

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 is the average tax rate when income is $50,000?

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

What are the three categories of the costs of taxes to taxpayers?

A payroll tax is also referred to as a social insurance tax.

Suppose the government taxes 10 percent of the first $20,000 in income, 20 percent of the next $20,000 in income, and 30 percent of all income over $40,000. Calculate the marginal tax rate and the average tax rate for a person who earns $100,000.

Medicare is the

Table 12-10 -Refer to Table 12-10. Which plan illustrates a progressive tax?