exam2c

# exam2c - Introduction to Microeconomics Exam 2 April 2010...

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Introduction to Microeconomics Exam 2 April 2010 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. Suppose a country imposes a lump-sum income tax of \$5,000 on each individual in the country. What is the marginal income tax rate for an individual who earns \$40,000 during the year? a. 0% b. The marginal tax rate cannot be determined without knowing the entire tax schedule. c. 10% d. More than 10% ____ 2. Which of the following statements is correct? a. Government should tax goods with positive externalities and subsidize goods with negative externalities. b. Government should tax goods with either positive or negative externalities. c. Government should subsidize goods with either positive or negative externalities. d. Government should tax goods with negative externalities and subsidize goods with positive externalities. Figure 8-7 The vertical distance between points A and B represents a tax in the market. Demand Supply B A 5 10 15 20 25 30 35 40 45 50 55 60 Quantity 2 4 6 8 10 12 14 16 18 20 22 24 Price ____ 3. Refer to Figure 8-7 . Which of the following statements summarizes the incidence of the tax? a. For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear two-thirds of the tax burden. b. For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers bear one-fourth of the tax burden. c. For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear one-half of the tax burden. d. For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers bear three-fourths of the tax burden. ____ 4. Once tradable pollution permits have been allocated to firms,

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a. the value of pollution-saving technology will be lower than the market value of a pollution permit. b. the Coase theorem is no longer applicable as a solution to reducing pollution. c. firms that can reduce pollution only at high cost will be willing to pay the most for the pollution permits. d. the government controls the price of permits. ____ 5. Tim earns income of \$60,000 per year and pays \$21,000 per year in taxes. Tim paid 20 percent in taxes on the first \$30,000 he earned. What was the marginal tax rate on the second \$30,000 he earned? a. 50 percent b. 30 percent c. 70 percent d. 20 percent ____ 6. An optimal tax on pollution would result in which of the following? a. Producers will choose not to produce any pollution. b. Producers will maximize production. c. The value to consumers at market equilibrium will exceed the social cost of production. d. Producers will internalize the cost of the pollution. ____ 7.
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## exam2c - Introduction to Microeconomics Exam 2 April 2010...

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