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what asserts that households and businesses should purchase the goods and services of government in the same way they buy other commodities? (for example taxes on gas usually help finance highway construction)

benefits-recieved principle

what are the difficulties with the benefits-recieved principle?

~how will the government determine the benefits that individual households and businesses receive from national defense, education, courts and other public goods?
~principle cannot logically be applied to income redistribution programs (self-defeating to ask poor to pay the taxes needed to finance their welfare payments)

what principle asserts that the tax burden should be apportioned according to taxpayers' income and wealth?

ability to pay principle

is their any scientific way of measuring someone's ability to pay taxes?

no

a tax is __ if its average rate increases as income increases

progressive

a tax is __ if its average rate declines as income increases

regressive

a tax is __ if its average rate remains the same regardless of the size of income

proportional

personal income tax is a __ tax

progressive

sales tax is a __ tax

regressive; you want to say proportional but really when income increases you use less income on sales tax (thus regressive)

corporate income tax is a __ tax

proportional with a flat 35% rate assuming shareholders bear tax so long as the tax is not passed through to consumers (thus regressive like sales tax)

payroll tax

regressive because social security applies to a fixed amount of ones income (although the medicare part is a normal progressive tax but less than social security)

property taxes are ___ taxes

regressive; for the same reasons as sales tax

since the government imposes taxes on the sellers we can view the tax as an addition to ___

the marginal cost- causing quantity demanded to fall and price to rise

with a specific supply, the more inelastic the demand for the product, the larger is the ___

portion of the tax shifted to consumers

where, graphically, is efficiency lost due to taxes?

between supply1, supply2, demand, consumer tax, and producer tax (the a,b,c triangle)

what is the efficiency loss of the tax called?

deadweight loss of tax

other things equal, the greater the elasticities of supply and demand, the greater ___

the efficiency loss of a particular good

what are two tax goals that are as good as or sometimes trump minimizing efficiency losses from taxes?

~redistributive goals
~reducing negative externalities

the federal tax system, when all added together, is __

progressive

state and local tax systems, when all added together, are __

regressive

overall US tax system, when all added together is slightly ___

progressive

what is the fallacy of limited decisions??

liberal idea that conservatives implicitly assume that during any particular period there is a limited, or fixed, number of decisions to be made in the operation of the economy (government must let private sector have most of the decision making)

what are two ways to measure income inequality?

~to look at the % of families in a series of income categories
~to divide the total # of income receivers into 5 equal groups, or quintiles, and examine the % of total personal income received by each

what is the Lorenz Curve?

the quintile distribution put graphically

movement of individuals or families from one income quintile to another over time is called___

income mobility (needs time)

income redistribution takes two forms through the government-

~cash transfer payments (social security, unemployment etc)
~noncash transfers (foodstamps, medicare etc)

what are the causes of income inequality?

~ability
~education/training
~discrimination
~preferences/risks
~unequal distribution of wealth
~market power (ability to rig market)
~luck, connections and misfortune

what is the basic argument for an equal distribution of income?

income equality maximizes the total consumer satisfaction (utility) from any particular level of output and income

what fundamental assumption does the equal distribution of income miss?

the way in which income is distributed is an important determinant of the amount of output or income that is produced and is available for distribution

explain the leaky bucket analogy?

if people want to distribute income from the rich to the poor they must care the money in a leaky bucket and everything that is lost represents efficiency lose

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