#1
Which of the following is an example of an indirect tax?
Sales tax
ExplanationSales tax is an illustration of an indirect tax.
#2
Which of the following is a direct tax?
Property tax
ExplanationProperty tax exemplifies a direct tax.
#3
How does a tax affect the equilibrium price and quantity in a market?
It increases price and decreases quantity.
ExplanationTax raises market price and reduces the quantity exchanged.
#4
When a tax is imposed on a good, which area of the market is affected?
Both consumer and producer surplus
ExplanationConsumer and producer surplus are impacted by a tax on a good.
#5
Which of the following best describes the concept of tax incidence?
The final burden of a tax and who bears it
ExplanationTax incidence is about identifying the ultimate burden and bearer of a tax.
#6
In a perfectly competitive market, how does a tax impact the supply curve?
It shifts the supply curve to the left.
ExplanationTax in perfect competition shifts the supply curve leftward.
#7
Which of the following best describes a progressive tax system?
Tax rates increase as income increases.
ExplanationProgressive tax entails higher rates with rising income levels.
#8
Which of the following is an example of an ad valorem tax?
Income tax
ExplanationIncome tax is an illustration of an ad valorem tax.
#9
How does elasticity of demand affect the impact of a tax on a market?
Low elasticity magnifies the impact.
ExplanationLow demand elasticity amplifies the effect of a tax.
#10
What is the deadweight loss of a tax?
The overall loss in economic efficiency
ExplanationDeadweight loss represents the total economic efficiency decline due to a tax.
#11
How does a tax on a good with perfectly inelastic demand affect the market price?
It increases the price by the full amount of the tax.
ExplanationPerfectly inelastic demand sees the full tax amount reflected in price.
#12
What is the Laffer curve?
A curve showing the relationship between tax rates and tax revenue
ExplanationLaffer curve depicts the correlation between tax rates and revenue.
#13
In which market structure does a tax burden fall entirely on consumers in the long run?
Monopoly
ExplanationIn a monopoly, consumers bear the full long-term tax burden.
#14
What is the relationship between tax revenue and tax rates according to the Laffer curve?
Tax revenue first increases then decreases as tax rates increase.
ExplanationLaffer curve states that tax revenue initially rises, then falls with increasing tax rates.