1. A tax on consumers would case the market price to _______ and the market quantity to .

a. increase; decrease

b. increase; increase

c. decrease; decrease

d. decrease; increase

2. Now assume that the municipality decides to tax the same percentage of income for everyone regardless of income. Describe the tax in terms of the opportunity costs for individuals.

a. Individuals will have the same opportunity costs because the tax is a percentage of income. It is fair.

b. Individuals with a higher income will have higher marginal costs when they give up spending the percentage of income going to the tax instead.

c. Individuals with a lower income will give up higher marginal utilities than those with higher incomes.

3. The goal of a local government is to raise the most income in order to provide the best possible education for residents. Several different types of taxes are being considered. In order to raise the most funds for a given tax level, the taxes should be placed on goods, services, or activities:

a. that have the most elastic demands.

b. that have the most inelastic demands.

c. elasticity of demand is not relevant.

4. If the goal of a local government is to have the least effect on spending patters of taxpayers, the taxes should be placed on goods, services, or activities:

a. that have the most elastic demands.

b. that have the most inelastic demands.

c. elasticity of demand is not relevant.