Q&A Hero

Q: In 2012, over 75 percent of the revenue of the U.S. federal government was raised through A) individual income and social insurance taxes. B) property and social insurance taxes. C) sales and corporate income taxes. D) individual income and property taxes.

Q: The federal government and some state governments levy taxes on specific goods such as gasoline, cigarettes and beer. These are known as A) sales taxes. B) sin taxes. C) specific taxes. D) excise taxes.

Q: A tax imposed by a state or local government on retail sales of most products is A) an excise tax. B) a social service tax. C) a consumption tax. D) a sales tax.

Q: Which of the following is the source of revenue for Medicare and Social Security in the United States? A) individual income taxes B) sales taxes C) social insurance taxes D) property taxes

Q: In the United States, the largest source of funds for public schools is A) the federal income tax. B) the property tax. C) the consumption tax. D) sales taxes.

Q: Which of the following is the largest source of revenue for the U.S. federal government? A) the individual income tax B) social insurance taxes C) sales taxes D) property taxes

Q: "Sin taxes," such as taxes on alcoholic beverages, are intended to A) increase the amount of the products supplied. B) generate money to subsidize production of the products taxed. C) reduce the quantity demanded. D) generate funds to aid in the medical care of those harmed by the product.

Q: Consider a public good such as fire protection services. Rich people may benefit more than the poor from such a service because rich people stand to lose more from a fire that destroys property. In this case A) the ability-to-pay principle may support the rich paying more taxes than the poor, but not the benefits-received principle. B) the benefits-received principle may support the rich paying more taxes than the poor, but not the ability-to-pay principle. C) both the benefits-received and the ability-to-pay principles may support the rich paying more taxes than the poor. D) neither the benefits-received nor the ability-to-pay principles may support the rich paying more taxes than the poor.

Q: The sales tax A) is consistent with the benefits-received principle because low-income individuals spend less on goods and services than do high-income people. B) is not consistent with the ability-to-pay principle because low-income individuals tend to spend a larger fraction of their income than do high-income individuals. C) is not consistent with the ability-to-pay principle because low-income individuals tend to purchase a smaller bundle of goods and services compared to high-income individuals. D) is not consistent with the benefits-received principle because low-income individuals spend less on goods and services than do high-income individuals, yet pay the same sales tax rate.

Q: The government of Silverado raises revenue through a general income tax paid by all its residents to operate the city's marina. The marina is used by private boat owners. This method of raising revenue to operate the marina is A) consistent with the benefits-received principle. B) consistent with the ability-to-pay principle. C) inconsistent with the benefits-received principle. D) inconsistent with the ability-to-pay principle.

Q: The idea that individuals should be taxed in proportion to the marginal benefits that they receive from public goods is called A) the ability-to-pay principle. B) the horizontal-equity principle. C) the vertical-equity principle. D) the benefits-received principle.

Q: Gasoline taxes that are typically used for highway construction and maintenance are consistent with which of the following principles of taxation? A) the ability-to-pay principle B) the horizontal-equity principle C) the vertical-equity principle D) the benefits-received principle

Q: The idea that two taxpayers in the same economic circumstances should pay the same level of taxes is known as the A) ability-to-pay principle. B) vertical-equity principle. C) horizontal-equity principle. D) benefits-received principle.

Q: The "ability-to-pay" principle of taxation is the normative idea that A) an equitable tax system is one in which high income individuals should bear a greater burden of taxes than low income individuals. B) each individual should voluntarily contribute according to her ability to pay taxes. C) progressive taxes are more equitable than regressive taxes. D) two individuals earning the same income should have equal ability to pay, all else constant.

Q: All of the following occur whenever a government taxes a product except A) the quantity consumed of that product falls. B) the price of that product rises. C) the marginal benefit of the last unit sold exceeds the marginal cost of producing it. D) there will be no excess burden if the government's tax revenue is sufficiently large to offset the deadweight loss.

Q: The federal corporate income tax is A) regressive. B) proportional. C) progressive. D) unfair.

Q: Policymakers focus on marginal tax rate changes when making changes in the tax code because the marginal tax rate A) determines how tax revenue will change as national income increases. B) affects people's willingness to work, save, and invest. C) always equals the average tax rate which is harder to measure. D) determines how much revenue the government will have to spend.

Q: If the marginal tax rate is equal to the average tax rate as taxable income increases, the tax structure is A) regressive. B) proportional. C) progressive. D) unfair.

Q: If the marginal tax rate is less than the average tax rate as taxable income increases, the tax structure is A) regressive. B) proportional. C) progressive. D) unfair.

Q: A marginal tax rate is A) the fraction of income that must be paid in taxes. B) the fraction of each additional dollar of income that must be paid in taxes. C) the incremental income one must earn to offset each additional dollar of tax. D) the ratio of a change in income to a change in taxes paid.

Q: A marginal tax rate is calculated as A) total taxable income by taxes paid. B) taxes paid total taxable income. C) change in taxes paid the change in total taxable income. D) change in taxable income change in taxes paid.

Q: An average tax rate is calculated as A) total taxable income taxes paid. B) total taxable income taxes paid. C) taxes paid total taxable income. D) (total taxable income - taxes paid) taxable income.

Q: The largest percentage of federal income tax revenue in the United States is paid by the A) lowest income taxpayers. B) middle income taxpayers. C) highest income taxpayers. D) All groups of taxpayerslow income, high income and middle incomepay the same percent of federal income taxes.

Q: Table 18-6Income Tax BracketMarginal Tax Rate$0 - 8,00012%8,001 - 22,00017%22,001 - 48,00025%48,001 and over38%Table 18-6 shows the income tax brackets and tax rates for single taxpayers in Calpernia.Refer to Table 18-6. Sasha is a single taxpayer with an income of $60,000. What is his marginal tax rate and what is his average tax rate?A) marginal tax rate = 38%; average tax rate = 23%B) marginal tax rate = 17%; average tax rate = 21%C) marginal tax rate = 38%; average tax rate = 24%D) marginal tax rate = 23%; average tax rate = 38%

Q: Table 18-6Income Tax BracketMarginal Tax Rate$0 - 8,00012%8,001 - 22,00017%22,001 - 48,00025%48,001 and over38%Table 18-6 shows the income tax brackets and tax rates for single taxpayers in Calpernia.Refer to Table 18-6. Calculate the income tax paid by Sasha, a single taxpayer with an income of $60,000.A) $22,800B) $14,399C) $13,800D) $13,642

Q: Table 18-5Taxable IncomeTax Payments$20,000$2,00025,0002,25032,0002,56042,0002,940Table 18-5 shows the amount of taxes paid on various levels of income.Refer to Table 18-5. The tax system isA) progressive throughout all levels of income.B) proportional throughout all levels of income.C) regressive throughout all levels of income.D) regressive between $20,000 and $25,000 of income and progressive between $32,000 and $42,000.

Q: Exemptions and deductions are used A) to add to taxes that must be paid. B) by taxpayers to reduce the amount of income subject to tax. C) to determine the type of tax structure. D) to determine what items are subject to sales taxes.

Q: A personal exemption refers to A) the tax rate that applies to a particular tax bracket. B) the tax bracket that represents basic living expenses. C) an amount representing basic living expenses that can be subtracted from income. D) a dispensation that allows certain qualifying individuals not to pay federal taxes.

Q: A tax bracket is A) the percent of taxable income paid in taxes at a specific income bracket. B) the income range within which a particular tax rate applies. C) the type of tax structure for which a range of taxes applies. D) the range, from the high to the low tax rate, of a particular type of tax.

Q: If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,500 on an income of $30,000, then over this range of income the tax is A) regressive. B) proportional. C) progressive. D) There is insufficient information to answer the question.

Q: If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,000 on an income of $30,000, then over this range of income the tax is A) regressive. B) proportional. C) progressive. D) There is insufficient information to answer the question.

Q: If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 on an income of $30,000, then over this range of income the tax is A) regressive. B) proportional. C) progressive. D) There is insufficient information to answer the question.

Q: If you pay a constant percentage of your taxable income in taxes, the tax is A) regressive. B) proportional. C) progressive. D) random.

Q: If, as your taxable income decreases, you pay a larger percentage of your taxable income in taxes, then the tax is A) regressive. B) proportional. C) progressive. D) unfair.

Q: If, as your taxable income decreases, you pay a smaller percentage of your taxable income in taxes, then the tax is A) regressive. B) proportional. C) progressive. D) unfair.

Q: Public schools in the United States get most of their operating funds from A) government production and subsidies. B) income taxes on corporate profits. C) local property taxes. D) tariffs collected on imported goods.

Q: An example of a payroll tax in the United States is A) Social Security taxes. B) taxes on corporate profit. C) excise taxes on gasoline. D) property taxes on real estate.

Q: At the state and local levels in the United States, the largest source of tax revenue is A) individual income taxes. B) property tax on real estate. C) sales tax. D) grants from the federal government.

Q: The largest source of revenue for the federal government of the United States is from A) tariffs collected on imported goods. B) property taxes imposed on private property. C) sales taxes on items purchased for consumption. D) individual income taxes.

Q: Table 18-4Foreign AidPost-Secondary EducationRoads and BridgesTom3rd1st2ndDick2nd3rd1stHarriet1st2nd3rdRefer to Table 18-4. The table above outlines the rankings of three members of the U.S. House of Representatives on three spending alternatives. Assume that Congress can spend additional revenue on only one of the three spending alternatives and that Tom, Dick and Harriet, all members of the House of Representatives, participate in a series of votes in which they are to determine which of the spending alternatives should receive funding. Three votes will be taken: (1) Foreign Aid and Post-Secondary Education (2) Foreign Aid and Roads and Bridges and (3) Post-Secondary Education and Roads and Bridges.Determine whether the voting paradox will occur as a result of these votes.

Q: Table 18-3Immigration ReformUnemployment BenefitsSocial Security ReformBart1st3rd2ndLisa2nd1st3rdMaggie3rd2nd1stRefer to Table 18-3. The table above outlines the rankings of three members of the U.S. Senate on three spending alternatives. Assume that Congress can spend additional revenue on only one of the three spending alternatives and that Bart, Lisa, and Maggie, all members of the Senate, participate in a series of votes in which they are to determine which of the spending alternatives should receive funding. Three votes will be taken: (1) Immigration Reform and Unemployment Benefits (2) Immigration Reform and Social Security Reform and (3) Unemployment Benefits and Social Security Reform.Show the results of each vote and determine whether the voting paradox will occur as a result of these votes.

Q: Former Alabama Governor George Wallace ran for president several times, once as a third-party candidate in 1968. Wallace claimed there was "not a dime's worth of difference" between the Democratic and Republican parties during one of his campaigns. How does Wallace's comment relate to the median voter theorem?

Q: A key assumption of the public choice model is that government policymakers will pursue their own self-interests. Economists assume that consumers and firms pursue their own self-interests when they interact in competitive markets and this interaction results in efficient economic outcomes. Does the pursuit of self-interest by policymakers result in efficient economic outcomes?

Q: Is a typical person likely to gather more information when buying a new computer or when voting for a member of the U.S. Senate? Why?

Q: Define logrolling. Explain why logrolling often results in legislation that benefits the economic interests of a few, while harming the interests of a larger group of people.

Q: What is rent seeking and how is it related to regulatory capture?

Q: What is the relationship between market failure and government failure?

Q: What is the difference between the voting paradox and the Arrow impossibility theorem?

Q: Rent seeking behavior, unlike profit maximizing behavior in competitive markets, wastes society's scarce resources.

Q: Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

Q: The median voter theorem states that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle.

Q: A key insight of the public choice model is that public policymakers are likely to pursue the public's interest, even if their self-interests conflict with the public interest.

Q: Unlike the market process, in the political market it is possible for some individuals to receive very large benefits from the political process without any significant impact on their tax bills.

Q: If voters lack an economic incentive to become informed about pending legislation, then their preferences become a constraint on legislators voting for rent-seeking legislation.

Q: When the majority of voters have preferences very different from those of the median voter, then the median voter theorem will lead to accurate predictions of the outcomes of elections.

Q: The public choice model asserts that the self-interest of policymakers is likely to cause them to take actions that are inconsistent with the preferences of voters, even where those preferences are clear.

Q: The public choice model raises questions about the government's ability to regulate economic activity efficiently. Which of the following statements represents the views of most economists with regard to the role of government? A) Congress should abolish the Food and Drug Administration, the Environmental Protection Agency and other agencies and commissions because the costs of their actions exceed the benefits they provide to the public. B) Government should do more to regulate markets. The public choice model has shown that rent seeking and rational ignorance affect more markets than are currently subject to regulation. C) U.S. citizens can afford more government regulation if the cost of this regulation is borne mostly by taxpayers with the highest incomes. D) Agencies such as the Food and Drug Administration and the Environmental Protection Agency can serve a useful purpose, but we need to take the costs of regulation into account along with the benefits.

Q: One result of the public choice model is that most economists believe that A) when market failure occurs, government intervention will always lead to a more efficient outcome. B) government intervention will always result in a reduction in economic efficiency in regulated markets. C) policymakers may have incentives to intervene in the economy in ways that do not promote economic efficiency. D) the voting paradox will prevent voters from selecting the best person for public office.

Q: Many economists believe that when the federal government establishes an agency to regulate a particular industry, the regulated firms try to influence the agency even if these actions do not benefit the public. Economists refer to this result of government regulation by which of the following terms? A) regulatory capture B) logrolling C) special interest regulation D) the regulatory paradox

Q: Congressman Flack votes for a program that will benefit the constituents of Congressman Walpole. The public choice model suggests that Flack's vote is best explained by which of the following? A) rational ignorance B) party loyalty C) logrolling D) the voting paradox

Q: Congressman Flack votes for a program that will benefit the constituents of Congressman Walpole. Which of the following explanations for Flack's vote is most consistent with the public choice model? A) Congressman Flack did not have time to read and understand all of the legislation he voted on. Members of Congress often depend on their staffs to read proposed legislation and recommend how they should vote. B) Legislators such as Congressman Flack are similar to other decision-makers in that they sometimes make irrational choices. C) Congressman Flack will support programs of legislators from his own party, regardless of who benefits from these programs. D) Congressman Flack expects Congressman Walpole's support for programs that will benefit Flack's constituents.

Q: Financial contributions to the campaigns of members of Congress, state legislators and other elected officials by firms that seek special interest legislation that make the firms better off are A) examples of rent seeking. B) illegal. C) the result of the voting paradox. D) irrational because elected officials will almost always act in the interest of the voters who have to pay the cost of the legislation.

Q: Economists often analyze the interaction of individuals and firms in markets. Economists also examine the actions of individuals and firms as they attempt to use government to make themselves better off at the expense of others, a process that is referred to as A) rent seeking. B) logrolling. C) government failure. D) the public choice initiative.

Q: The public choice model can be used to examine voting models that contrast the manner in which collective decisions are made by governments (state, local and federal) and the manner in which individual choices are made in markets. Which of the following descriptions is consistent with the difference between collective decision-making and decision-making in markets? A) Everyone who votes must agree with a decision made collectively through government, but in markets individuals can make their own choices. B) Individuals are less likely to see their preferences represented in the outcomes of government policies than in the outcomes of markets. C) The cost of a government policy is determined by a majority vote of members of the public; decisions made in markets are based on individual willingness to pay. D) Choices made through government policies are more important than decisions individuals make through markets.

Q: What is the term that explains why voters often lack knowledge of pending legislation, and lack knowledge of the views of candidates for office on a range of issues that affect their own (the voters') welfare? A) the voting paradox B) logrolling C) rational ignorance D) regulatory capture

Q: Which of the following is a consequence of the voting paradox? A) A majority of voters elect a candidate that does not represent the preferences of the voter who is in the political middle. B) Politicians support small groups of individuals and firms that benefit from special interest legislation, rather than a much larger group of voters who pay the cost for this legislation. C) Individuals and firms who benefit from government actions engage in rent seeking. D) The collective preferences of voters are not transitive and voting outcomes are inconsistent.

Q: Which of the following statements refers to rent seeking? A) "Laws passed by the federal government often provide benefits for a small number of individuals. These individuals, in turn, have an incentive to contribute to the campaigns of politicians who pass these laws." B) "The federal government should spend more money on programs that help low income citizens and less money on national defense." C) "The role of the federal government in the U.S. economy grew significantly after the Great Depression. Government spending and taxes are a much greater proportion of total income today than they were in 1929." D) "There is an opportunity cost whenever the federal government spends tax revenue. For example, an additional $1 billion spent on national defense means there will be less revenue for highway construction and maintenance or some other program."

Q: Which of the following is an example of rent seeking behavior? A) Apple earned large profits from the development and sale of the iPhone. B) Amazon introduced the Kindle to compete with Sony's Digital Reader. Amazon was motivated by the desire to earn profits from the Kindle but also increased the choice of digital music players available to consumers. C) U.S. sugar firms convinced Congress to impose a quota on imports of sugar. D) Recent increases in cigarette taxes faced little opposition from voters, many of whom were rationally ignorant with respect to the tax.

Q: Some individuals seek to use government action to make themselves better off at the expense of others. The actions of these individuals A) are examples of fraud; but these individuals usually avoid prosecution because of logrolling and rational ignorance. B) are examples of rent seeking. C) offer proof that Adam Smith's "invisible hand" is not valid. D) are evidence of the voting paradox.

Q: Which of the following is used to argue that the self-interest of public policymakers will often lead to actions that are inconsistent with the preferences of the voters they represent? A) the voting paradox B) the median voter theorem C) rent seeking D) transitivity of voters' preferences

Q: The political process is more likely to serve the interests of individuals whose preferences are in the middle, rather than individuals with preferences that are much to the left or right of the political center. This statement is best explained by which of the following? A) logrolling B) the voting paradox C) the Arrow impossibility theorem D) the median voter theorem

Q: Congressman Gallstone seeks support from his colleagues for a bill he sponsors that will establish a new national park in his district. He offers to support Congresswoman Disrail's proposal to build a new library in her district in exchange for her vote for his national park bill. This is an example of A) regulatory capture. B) logrolling. C) rational ignorance. D) government failure.

Q: A common belief among political analysts is that someone running for his or her party's nomination for president of the United States must choose a different strategy once the nomination is secured. To be nominated, the candidate must appeal to voters from one party - Democrat or Republican - but in a general election a party's nominee must appeal to voters from both parties as well as independent voters. Which of the following offers the best explanation for this change in strategy? A) the Arrow impossibility theorem B) the voting paradox C) the median voter theorem D) rent seeking

Q: The Arrow impossibility theorem A) explains why people can be rational as well as ignorant at the same time. B) explains why voting systems do not consistently represent the preferences of voters. C) explains why candidates for public office must represent the preferences of the political middle. D) explains why it is impossible, in most cases, to eliminate special-interest legislation after it has become law.

Q: Table 18-2PolicyJohn CornynHerb KohlBen NelsonHomeland security1st2nd3rdEducation2nd3rd1stMedical research3rd1st2ndRefer to Table 18-2. The table above lists three policy alternatives that the U.S. Senate will vote on, along with the ranking of these alternates. The Senate must decide which of these alternatives should receive an additional $1 billion of funding, and there is enough money in the federal budget for only one of these alternatives. If a series of votes is taken in which each pair of alternatives is considered (homeland security and education; homeland security and medical research; education and medical research) which of the following will result from these votes?A) When the vote is between homeland security and education, the Senators will vote for education to receive funding.B) The Senators' votes will demonstrate transitivity.C) The results will illustrate the voting paradox.D) The results from the voting will illustrate the median voter theorem.

Q: The proposition that the outcome of a majority vote is likely to represent the preferences of the voter who is in the political middle is called A) the mean (or average) voter theorem. B) the voting paradox. C) the Arrow impossibility theorem. D) the median voter theorem.

Q: The Arrow impossibility theorem explains A) why there is no system of voting that will consistently represent the underlying preferences of voters. B) why government regulation of private markets will always result in a reduction in economic efficiency in these markets. C) why voters are always rationally ignorant. D) why it is not possible to provide the economically efficient amount of any public good.

Q: Economist Kenneth Arrow has shown mathematically that no system of voting will consistently represent the underlying preferences of voters. This finding is called A) the Arrow impossibility theorem. B) Arrow's median voter model. C) Arrow's Amendment to the public choice model. D) Arrow's majority vote paradox.

Q: When members of Congress vote to pass new legislation, they will A) always vote for the alternative favored by a majority of the voters. B) fail to consistently represent the underlying preferences of voters. C) always vote for the alternative favored by a plurality of the voters if there is no majority position. D) always fail to represent the underlying preferences of voters.

Q: The public choice model assumes that government policy makers A) must promote the public interest at the expense of their own self-interests in order to be re-elected. B) will pursue their self-interests in personal affairs but only if it does not conflict with the public interest. C) will often act irrationally in their personal affairs, but will act rationally when they promote the public interest. D) are likely to pursue their own self-interests, even if their self-interests conflict with the public interest.