Refer to Scenario 19.1 below to answer the questions that follow.

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1 1) A tax whose burden, expressed as a percentage of income, falls as income increases is a A) regressive tax. B) progressive tax. C) proportional tax. D) benefits-received tax. 2) A tax whose burden is the same proportion of income for all households is A) a regressive tax. B) a progressive tax. C) a proportional tax. D) an equal tax 3) A tax whose burden, expressed as a percentage of income, increases as income increases is A) a regressive tax. B) a progressive tax. C) a proportional tax. D) an ability-to-pay tax. 4) The excise tax is. A) progressive B) regressive C) proportional D) an ability-to-pay tax Refer to Scenario 19.1 below to answer the questions that follow. SCENARIO 19.1: An individual earning $60,000 pays $12,000 in taxes. The marginal tax rate on any income earned above $60,000 is 25%. 5) Refer to Scenario When this person earns $60,000, her average tax rate is A) 5%. B) 20%. C) 25%. D) indeterminate from this information. 6) Refer to Scenario When this person earns $70,000, her tax payment would be A) $2,500. B) $14,500. C) $17,500. D) indeterminate from this information.

2 7) Refer to Scenario When this person earns $70,000, her average tax rate is A) 20.7%. B) 22.5%. C) 25%. D) indeterminate from this information. 8) Refer to Scenario Suppose this person earns $70,000 and gives a $1,000 tax deductible donation to charity. The donation reduces her tax payment by. A) $200 B) $207 C) $250 D) $1000 9) If the marginal tax rate exceeds the average tax rate, the tax would be A) proportional. C) progressive. 10) If the average tax rate exceeds the marginal tax rate, the tax would be A) proportional. C) progressive. 11) If the marginal tax rate equals the average tax rate, the tax would be A) proportional. C) progressive. 12) Which of the following is a tax based on the benefits-received principle? A) A property tax, if the revenue is used to finance public education. B) A tax on imports that is used to finance job retraining for workers who have lost their jobs because of the competition from imported products. C) A progressive income tax that is used to finance national defense. D) A tax added to the camping fee at national parks that is used to maintain and upgrade camping facilities at national parks. 13) The progressive income tax is a tax based on the A) benefits-received principle. B) tax equity principle. C) efficiency tax principle. D) ability-to-pay principle.

3 14) Tax incidence is the. A) behavior 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 Refer to the information provided in Figure 19.1 below to answer the questions that follow. Figure ) Refer to Figure Prior to the imposition of a payroll tax, this labor market was in equilibrium at a wage of and employment of workers. A) $5.00; 500 B) $7.00; 800 C) $10.00; 700 D) $12.00; ) Refer to Figure The payroll tax imposed is per unit of labor. A) $2 B) $3 C) $5 D) $10 17) Refer to Figure Initially after the payroll tax is imposed, the firmsʹ cost per unit of labor is per hour and the workersʹ take home pay is per hour. A) $10; $9 B) $9; $9 C) $10; $10 D) $12; $7

4 18) Refer to Figure Initially after the payroll tax is imposed, there will be A) an equilibrium in the labor market. B) an excess demand for labor of 100 units. C) an excess supply of labor of 150 units. D) an excess supply of labor or 100 units. 19) Refer to Figure After firms can respond to the payroll tax, the per-hour wage paid by firms equals A) $12. B) $10. C) $7. D) $5. 20) Refer to Figure After firms can respond to the payroll tax, the workers will take home a per-hour wage of A) $12. B) $10. C) $7. D) $5. 21) Refer to Figure After firms can respond to the payroll tax, employment will be A) 500. B) 650. C) 700. D) ) Refer to Figure The workersʹ share of the tax burden is and the employersʹ share of the tax burden is. A) $2,100; $1,400 B) $1,400; $2,100 C) $700; $1,400 D) $0; $2,100 23) Refer to Figure The total tax collections from this payroll tax are: A) $700. B) $1,400. C) $2,100. D) $3,500.

5 24) If labor supply is very elastic, the payroll tax is A) borne mostly by the employer. B) borne entirely by the employer. C) borne mostly by the workers. D) split evenly between the employer and the workers. 25) When the labor supply is very inelastic, the payroll tax is A) borne mostly by the employer. B) borne entirely by the employer. C) borne mostly by the employee. D) split fairly evenly between the employer and the employee. 26) Employers will bear the full burden of the payroll tax if labor supply is A) perfectly inelastic. B) perfectly elastic. C) backward bending. D) upward sloping. 27) A payroll tax is imposed on two types of labor: carpenters and laborers. In the short run, the elasticity of labor supply of carpenters is much less elastic than the elasticity of labor supply of laborers. Which of the following is true? A) In the short run, carpenters will bear a larger share of the payroll tax than laborers. B) In the short run, laborers will bear a larger share of the payroll tax than carpenters. C) In the short run, carpenters and laborers will bear the same share of the payroll tax, but in the long run, laborers will bear a larger share of the payroll tax than carpenters. D) There is not enough information to determine the relative shares of the payroll tax for carpenters and laborers in either the short run or the long run. 28) The payroll tax for Social Security in the United States is A) progressive. C) proportional. 29) The payroll tax is regressive because A) most of the tax does not apply to wages and salaries above $118,500. B) wages and salaries are a larger percentage of total income for those higher on the income scale. C) the elasticity of labor supply is close to zero. D) wealthy individuals have more deductions from the payroll tax.

6 30) Empirical studies of labor supply behavior in the United States suggest that the elasticity of labor supply is close to zero and therefore A) most of the payroll tax in the United States is borne by workers. B) most of the payroll tax in the United States is borne by employers. C) most of the payroll tax in the United States is borne by consumers in the form of higher prices. D) the payroll tax is split equally between employers and workers. 31) State and local taxes seem as a group to be mildly and federal taxes seem as a group to be mildly. A) regressive; regressive B) progressive; regressive C) progressive; progressive D) regressive; progressive