Question

1. Taxes drive a wedge between the:

• quantity bought and the price received by sellers.

• price paid by buyers and the quantity received by sellers.

• income of the buyers and the incomes received by sellers.

• price paid by buyers and the price received by sellers.

2. Which of the following explains why most people’s marginal tax rate is higher than their average tax rate?

• The average tax rate is the tax you pay on your last dollar earned, while the marginal rate is the overall proportion of income paid in taxes.

• The marginal tax rate is the tax you paid on economic activities such as stock and bond trading, while the average rate is the overall proportion of income paid in taxes.

• Marginal tax is only paid by high-income households who earn more than the national average income. Households earning less than the average pay the average tax rate.

• The marginal tax rate is the tax you pay on your last dollar earned, while the average rate is the overall proportion of income paid in taxes.

A system in which average tax rates are higher than marginal tax rates is called:

• regressive.

• progressive.

• proportional.

3. The concept of incidence is used to describe:

• the geographic area where the tax applies.

• who bears the burden of any sort of tax.

• who receives the revenue of any sort of tax.

• who administers any tax.

Answer 1

1. price paid by buyers and the price received by sellers.
(Tax creates a tax wedge between Pb and Ps.)

2. The marginal tax rate is the tax you pay on your last dollar earned, while the average rate is the overall proportion of income paid in taxes.
(This is the difference between the two.)

regressive
(Average tax rate > marginal tax rate under regressive taxation.)

3. who bears the burden of any sort of tax.
(Tax incidence means who bears its burden.)