The Public Finance: Trivia Quiz
The public finance: trivia quiz. Businesses are all controlled by the government to a given level and sometimes the government intervenes in the economy. In the quiz below you will get to test out what you know about different types of taxes and regulations implemented by governments when it comes to business regulation and why they have been put in place. Give it a try and see what more you will learn from it.
- 1.
If the marginal tax rate on individual incomes falls, we would expect, other things constant, individuals to
- A.
Offer more hours of work and consume fewer hours of leisure
- B.
Offer fewer hours or work and consume more hours of leisure
- C.
Ultimately pay less in sales taxes
- D.
Experience an overall increase in worker productivity
- E.
All of (a)-(d)
Correct Answer
A. Offer more hours of work and consume fewer hours of leisureExplanation
If the marginal tax rate on individual incomes falls, individuals would have more incentive to work because they get to keep a larger portion of their income. This would lead to individuals offering more hours of work. On the other hand, since individuals are working more, they would have less time for leisure activities, resulting in them consuming fewer hours of leisure. Therefore, the correct answer is that individuals would offer more hours of work and consume fewer hours of leisure.Rate this question:
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- 2.
Economists identify a tax structure as being progressive if
- A.
The average tax rate increases as the level of taxable income increases
- B.
The marginal tax rate falls as taxable income rises
- C.
The average tax rate remains constant as the level of taxable income rises
- D.
The marginal tax rate remains constant as the level of taxable income rises
- E.
All of (a)-(d)
Correct Answer
A. The average tax rate increases as the level of taxable income increasesExplanation
A tax structure is considered progressive if the average tax rate increases as the level of taxable income increases. This means that as individuals earn more income, they are required to pay a higher percentage of their income in taxes. This is often seen as a way to redistribute wealth and promote fairness in the tax system. By increasing the tax burden on higher income earners, progressive taxation aims to reduce income inequality and provide more resources for social welfare programs.Rate this question:
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- 3.
According to the Laffer curve, as tax rates increase, tax revenues
- A.
Rise continuously
- B.
Decrease continuously
- C.
Initially decrease and then increase
- D.
Initially increase and then decrease
- E.
All of (a)-(d)
Correct Answer
D. Initially increase and then decreaseExplanation
According to the Laffer curve, as tax rates increase, tax revenues initially increase and then decrease. This is because at lower tax rates, individuals and businesses have more incentive to work, invest, and spend, resulting in higher economic activity and tax revenues. However, as tax rates become excessively high, they can discourage work, investment, and consumption, leading to a decrease in economic activity and ultimately lower tax revenues. Therefore, there is an optimal tax rate that maximizes tax revenues, beyond which further increases in tax rates will have diminishing returns.Rate this question:
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- 4.
The negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion is
- A.
Fiscal drag
- B.
Bracket creep
- C.
The Laffer curve
- D.
Debt burden
- E.
All of (a)-(d)
Correct Answer
A. Fiscal dragExplanation
Fiscal drag refers to the negative effect on the economy when average tax rates increase due to taxpayers moving into higher income brackets during an expansion. This phenomenon can slow down economic growth as it reduces disposable income and hampers consumer spending. It can also discourage work and investment, leading to a decrease in productivity. Therefore, fiscal drag is the correct answer to the question.Rate this question:
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- 5.
A progressive income tax means that those with a higher income pay
- A.
A lower percentage of their income in taxes than low-income people
- B.
A higher percentage of their income in taxes than low-income people
- C.
The same percentage of their income in taxes as low-income people
- D.
All the taxes in the economy
- E.
All of (a)-(d)
Correct Answer
B. A higher percentage of their income in taxes than low-income peopleExplanation
A progressive income tax system is designed to impose higher tax rates on individuals with higher incomes and lower tax rates on individuals with lower incomes. This is done in order to achieve a more equitable distribution of the tax burden, as individuals with higher incomes are generally considered to have a greater ability to pay taxes. By requiring those with higher incomes to pay a higher percentage of their income in taxes than low-income individuals, the progressive income tax system aims to promote fairness and reduce income inequality.Rate this question:
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- 6.
The total amount of tax you pay divided by your total income is the
- A.
Marginal tax rate
- B.
Average tax rate
- C.
Total tax rate
- D.
Proportional tax rate
- E.
All of (a)-(d)
Correct Answer
B. Average tax rateExplanation
The average tax rate is calculated by dividing the total amount of tax paid by the total income. It represents the overall percentage of income that is paid in taxes. This rate takes into account the progressive nature of taxation, where individuals with higher incomes pay a higher percentage of their income in taxes. It provides a measure of the average tax burden for an individual or entity.Rate this question:
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- 7.
Tax shifting
- A.
Is the way in which a tax is structured
- B.
Is the ultimate distribution of a tax's burden
- C.
Occurs when taxes cause prices to increase, but wages to fall
- D.
Occurs when households can alter their behaviour and do something to avoid paying a tax.
- E.
All of (a)-(d)
Correct Answer
D. Occurs when households can alter their behaviour and do something to avoid paying a tax.Explanation
Tax shifting occurs when households can alter their behavior and do something to avoid paying a tax. This means that individuals or households have the ability to change their actions or make different choices in order to avoid or minimize their tax liability. This could include things like finding tax loopholes, engaging in tax planning strategies, or making changes to their financial or business activities to reduce their tax burden. In other words, tax shifting refers to the ability of taxpayers to shift the burden of the tax onto others or to find ways to avoid paying the tax themselves.Rate this question:
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- 8.
VAT (Value added tax) is a good example of which kind of tax
- A.
Ad valorem
- B.
Direct
- C.
Excise duty
- D.
Specific
- E.
All of (a)-(d)
Correct Answer
A. Ad valoremExplanation
VAT (Value Added Tax) is a good example of an ad valorem tax. Ad valorem taxes are levied as a percentage of the value of a product or service. In the case of VAT, it is applied to the value added at each stage of production and distribution. This means that the tax is based on the value that is added to the product or service as it moves through the supply chain. Therefore, VAT is directly proportional to the value of the goods or services being taxed, making it an ad valorem tax.Rate this question:
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- 9.
Where a tax can be shifted the incidence depends on
- A.
Elasticities of demand and supply
- B.
How many producers there are
- C.
Who is legally obliged to pay the tax
- D.
Whether there is perfect or imperfect information
- E.
All of (a)-(d)
Correct Answer
A. Elasticities of demand and supplyExplanation
The correct answer is "elasticities of demand and supply". The incidence of a tax being shifted depends on the relative elasticities of demand and supply in the market. If the demand is more elastic than supply, the burden of the tax is likely to be shifted more to the producers. On the other hand, if the supply is more elastic than demand, the burden of the tax is likely to be shifted more to the consumers. Therefore, the elasticities of demand and supply play a crucial role in determining the incidence of a tax.Rate this question:
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- 10.
Tax incidence is the
- A.
Behaviour of shifting the tax to another party
- B.
Ultimate distribution of a tax's burden
- C.
Structure of the tax
- D.
Measure of the impact the tax has on employment and output.
- E.
All of (a)-(d)
Correct Answer
B. Ultimate distribution of a tax's burdenExplanation
The correct answer is "ultimate distribution of a tax's burden." Tax incidence refers to the way in which the burden of a tax is distributed among different parties. It examines who ultimately bears the economic cost of the tax, whether it is the consumers, producers, or both. This concept is important in understanding the impact of taxes on various stakeholders and can help policymakers in designing tax systems that are fair and efficient.Rate this question:
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- 11.
Consider replacing the current US tax system with a proportional tax in which everyone would pay a constant fraction of their wages, and there would be no other taxes. Compared to the current personal tax system
- A.
The proportional tax would increase the amount of personal saving
- B.
The proportional tax would make the tax system less progressive than it is now
- C.
The proportional tax would increase the number of hours people work
- D.
All of (a)-(c)
- E.
None of (a)-(c)
Correct Answer
B. The proportional tax would make the tax system less progressive than it is nowExplanation
A proportional tax system means that everyone pays the same fraction of their wages as taxes, regardless of their income level. This means that higher-income individuals would no longer be taxed at a higher rate than lower-income individuals, making the tax system less progressive. In a progressive tax system, higher-income individuals pay a higher percentage of their income in taxes, which helps redistribute wealth and reduce income inequality. Therefore, replacing the current tax system with a proportional tax would make it less progressive.Rate this question:
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- 12.
Economic theory can justify which of the following claims about the effect of an increase in wage taxes:
- A.
It will increase equilibrium labor supply
- B.
It will decrease equilibrium labor supply
- C.
The effect will differ for households with different preferences
- D.
All of (a)-(c)
- E.
None of (a)-(c)
Correct Answer
C. The effect will differ for households with different preferencesExplanation
An increase in wage taxes can have different effects on labor supply for different households depending on their preferences. Some households may be more sensitive to changes in wages and may choose to work less when faced with higher taxes, leading to a decrease in equilibrium labor supply. On the other hand, other households may be less affected by the increase in taxes and may continue to work the same amount, resulting in no change in equilibrium labor supply. Therefore, the effect of an increase in wage taxes will differ for households with different preferences.Rate this question:
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- 13.
The incidence of a tax depends on
- A.
The elasticity of demand in the market
- B.
The market structure (competition, monopoply)
- C.
The production function for the good
- D.
All of (a)-(c)
- E.
None of (a)-(c)
Correct Answer
D. All of (a)-(c)Explanation
The correct answer is All of (a)-(c). The incidence of a tax refers to who ultimately bears the burden of the tax. It depends on various factors, including the elasticity of demand in the market. If demand is inelastic, consumers are less responsive to price changes, and they end up bearing a larger portion of the tax burden. On the other hand, if demand is elastic, consumers are more responsive to price changes, and producers may bear a larger portion of the tax burden. The market structure also plays a role in tax incidence, as monopolies may have more pricing power and can pass on the tax burden to consumers. Additionally, the production function for the good affects tax incidence as it determines the cost structure and potential for producers to absorb or pass on the tax.Rate this question:
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- 14.
Suppose someone discovers a set of 50 Picasso prints in their attic, and before the prints can be sold Congress passes a law that says that the buyer of all Picasso artworks must pay the government $10,000 for every artwork they buy. The person who found the prints hates art and so auctions them off anyway. According to the theory of tax incidence, which of the following is true?
- A.
The statutory incidence of the Picasso tax is on the buyer
- B.
Economic incidence of the Picasso tax is on the seller
- C.
The pretax purchase price of the artworks goes down by exactly $10,000
- D.
All of (a)-(c)
- E.
None of (a)-(c)
Correct Answer
D. All of (a)-(c)Explanation
The explanation for the correct answer, "All of (a)-(c)", is that according to the theory of tax incidence, the statutory incidence of the tax is on the buyer because they are the ones who are legally obligated to pay the government. The economic incidence of the tax is on the seller because they will likely adjust the price of the artworks to account for the tax burden. As a result, the pretax purchase price of the artworks will indeed go down by exactly $10,000. Therefore, all three statements (a)-(c) are true.Rate this question:
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- 15.
The knowledge that a Hopkins student won a Rhodes scholarship this year is a public good.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because the knowledge that a Hopkins student won a Rhodes scholarship this year can be considered a public good. A public good is something that is non-excludable and non-rivalrous, meaning that once the knowledge is made available, it can be accessed and enjoyed by everyone without diminishing its availability for others. In this case, the fact that a Hopkins student won a Rhodes scholarship is information that can be shared and known by the public without any restrictions or limitations.Rate this question:
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- 16.
Postwar economic history suggests that if the right institutions and government policies can be implemented in Iraq, it can become a prosperous country.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement suggests that based on postwar economic history, it is possible for Iraq to become a prosperous country if the correct institutions and government policies are put in place. This implies that the success of a country's economy is not solely determined by external factors, but also by internal factors such as governance and policies. Therefore, the statement is true as it highlights the potential for Iraq's prosperity with the right conditions.Rate this question:
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- 17.
The economic theory of insurance says that insurance is most valuable when it is used frequently. Thus, an insurance plan should focus on covering the risks that are most likely to happen.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The economic theory of insurance actually states that insurance is most valuable when it is used to cover risks that are unlikely to happen but have high potential costs. This is because insurance allows individuals or businesses to transfer the financial burden of rare but catastrophic events to an insurance company. By focusing on covering risks that are most likely to happen, an insurance plan would not provide the necessary protection for the most costly events. Therefore, the statement is false.Rate this question:
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- 18.
According to the play “A Man for All Seasons,” the Catholic saint Sir Thomas More believed that the purpose of human laws was to accomplish the will of God, and so it was OK sometimes to violate a human law in order to prevent something evil from happening.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Sir Thomas More, as depicted in the play "A Man for All Seasons," did not believe that it was okay to violate a human law in order to prevent something evil from happening. In fact, More believed in upholding the law and following it faithfully, even in the face of personal consequences. He believed that the purpose of human laws was to maintain order and justice in society, and that it was not within an individual's right to break those laws, regardless of their intentions. Therefore, the statement that Sir Thomas More believed it was sometimes okay to violate a human law is false.Rate this question:
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- 19.
A utilitarian analysis would say that the fact that income inequality is greater in the United States than elsewhere means that overall social utility per person is lower in the US than in other countries.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because a utilitarian analysis does not solely focus on income inequality as a measure of overall social utility. Utilitarianism considers the greatest happiness for the greatest number of people, taking into account various factors such as quality of life, access to resources, and overall well-being. Income inequality alone does not determine the overall social utility per person in a country.Rate this question:
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Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.
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Current Version
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Mar 22, 2023Quiz Edited by
ProProfs Editorial Team -
Aug 02, 2010Quiz Created by
Ferryfeub
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