Multiple Choice Questions
1. The two largest sources of tax revenue for the U.S. federal government are
a. Individual and corporate income taxes.
b. Individual income taxes and payroll taxes for social insurance.
c. Corporate income taxes and payroll taxes for social insurance.
d. Payroll taxes for social insurance and property taxes.
2. Andy gives piano lessons. He has an opportunity cost of $50 per lesson and charges $60. He has two students: Bob, who has a willingness to pay of $70, and Carl, who has a willingness to pay of $90. When the government puts a $20 tax on piano lessons and Andy raises his price to $80, the deadweight loss is _____________ and the tax revenue is _____________.
a. $10, $20
b. $10, $40
c. $20, $20
d. $20, $40
3. If the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _____________ percent and a marginal tax rate of _____________ percent.
a. 15, 25
b. 25, 15
c. 25, 30
d. 30, 25
4. A toll is a tax on those citizens who use toll roads. This policy can be viewed as an application of
a. The benefits principle.
b. Horizontal equity.
c. Vertical equity.
d. Tax progressivity.
5. In the United States, taxpayers in the top 1 percent of the income distribution pay about _____________ percent of their income in federal taxes.
a. 5
b. 10
c. 20
d. 30
6. If the corporate income tax induces businesses to reduce their capital investment, then
a. The tax does not have any deadweight loss.
b. Corporate shareholders benefit from the tax.
c. Workers bear some of the burden of the tax.
d. The tax achieves the goal of vertical equity