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Microeconomic topics - taxation

1. The cost of taxation to society includes:

a. the expansion of consumer surplus.

b. the expansion of producer surplus.

c. the direct cost of the money paid to government.

d. a lowering of the cost of exports.

2. An example of the benefit principle of taxation is:

a. rich taxpayers should pay more than poor taxpayers.

b. when people pay a gasoline tax used to maintain highways for fuel for their motorboat.

c. when travelers pay toll to cross a bridge.

d. when people with no children pay property taxes to support public schools.

3. An example of the ability-to-pay principle of taxation is:

a. rich taxpayers should pay more than poor taxpayers.

b. when people with no automobiles pay a gasoline tax for fuel for their motorboat.

c. when travelers pay toll to cross a bridge.

d. when people with no children pay property taxes to support public schools.

4. A good example of a tax based on the ability to pay is the ___________ tax.

a. sales

b. income

c. airport

d. Social Security

5. In regard to taxation:

a. who will end up bearing the burden of the tax is known as the incidence of the tax.

b. the person who physically pays the tax is the same person who bears the burden of the tax.

c. the more elastic one's relative supply and demand, the greater the burden of the tax one will bear.

d. tax burdens are generally shared equally.

6. The difference between the long-run problems of price controls and the short-run problems of price controls is that:

a. in the short run, supply and demand tend to be more elastic than in the long run.

b. in the long run, supply and demand tend to be more elastic than in the short run.

c. price controls will cause smaller shortages or surpluses in the long run than in the short run.

d. price controls will cause larger shortages or surpluses in the short run than in the long run.

7. The military conscription known as the draft:

a. is actually a price floor with forced supply.

b. is supported in Congress because it is cheaper than raising taxes significantly to pay for the higher wages required to keep a volunteer army.

c. transfers surplus from the government to the draftees.

d. is greeted with great enthusiasm by the draftees.

8. "Rent seeking:"

a. means the same thing to renters and landlords.

b. diverts useful resources into activities to redistribute surplus.

c. is of no concern to public choice economists.

d. aids the public in dramatic ways.

9. A widely adopted new technology in farming causes:

a. farmers to produce at a lower cost, therefore they become rich.

b. prices to fall, allowing farmers to sell more, thereby increasing their profits.

c. farmers to lose money, since most of them refuse to adopt the new technology.

d. farmers to lose money since the demand for food is inelastic meaning the price declines proportionally faster than the rise in quantity sold.

10. consumers are more likely to seek price controls when:

a. supply is inelastic.

b. demand is inelastic.

c. consumers cannot pay the equilibrium price.

d. suppliers refuse to change the equilibrium price.

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