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Exam 12: The Design of the Tax System

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Question 31

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Resources devoted to complying with the tax laws are a type of deadweight loss.

A) True
B) False

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Question 32

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Suppose that Kara values a hot fudge sundae at $6 and Stacia values one at $5. The pretax price of a hot fudge sundae is $3. The government imposes a $1 tax on hot fudge sundaes, which raises the price to $4. What is the deadweight loss from the tax?

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Prior to the tax, consumer surplus was $...

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Question 33

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Scenario 12-2 Suppose Regina and Ben receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $13 for it. Ben would be willing to pay $17 for his first slice, $14 for his second slice, and $10 for his third slice. The current market price is $10 per slice. -Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a tax of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

Two families who live in Plains, GA have identical incomes. The DeWitts deduct $5,000 from their taxable income for mortgage interest paid during the year. The DeMotts family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Tax evasion is legal, but tax avoidance is illegal.

Corporate profits distributed as dividends are

A value-added tax or VAT is a tax on

The U.S. federal government collects about

The notion that similar taxpayers should pay similar amounts of taxes is known as

European countries tend to rely more on consumption taxes than does the United States.

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

Which tax system requires higher-income taxpayers to have lower tax rates, even though they pay a larger amount of tax when compared to lower-income taxpayers?

Vertical equity is not consistent with a regressive tax structure.

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

In 2014, the largest source of receipts for state and local governments was individual income taxes.

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. What is total consumer surplus after the tax is levied?

In designing a tax system, policymakers have two objectives that are often conflicting. They are:

Table 12-1 ​ ​ $\begin{array} { | c | c | } \hline \text { Person } & \begin{array} { c } \text { Value of a White Water Rafting } \\\text { Trip } \\\text { (Dollars) }\end{array} \\\hline \text { Ken } & 150 \\\hline \text { Alex } & 120 \\\hline \text { Brenda } & 90 \\\hline \text { Rob } & 60 \\\hline\end{array}$ -Refer to Table 12-1. Assume that the price of a white water rafting trip pass is $55 and that the price reflects the actual unit cost of the trip. How much consumer surplus accrues to Ken and Alex individually?

Table 12-10 -Refer to Table 12-10. Which plan represents the best tax?