Question

Question 6 (5 points)

Tax laws affect

Question 6 options:

	A) economic efficiency but not equity.
	B) consumption and production, not efficiency and equity.
	C) equity but not economic efficiency.
	D) both efficiency and equity.

Question 7 (5 points)

Suppose the government imposes an 8 percent sales tax on clothing items and the tax is levied on sellers. Who pays for the tax in this situation? (Assume that the demand curve is downward-sloping and that the supply curve is upward-sloping.)

Question 7 options:

	A) The tax will be borne partly by consumers and partly by sellers (passed on in the form of lower wages or reduced profits to the investors).
	B) The tax is borne entirely by the sellers.
	C) The sellers will pass on the entire sales tax to consumers and therefore the consumers bear the tax
	D) It is not possible to answer the question without information on price elasticities.

Question 8 (5 points)

If, as your taxable income decreases, you pay a larger percentage of taxable income in taxes, the tax is progressive.

Question 8 options:

	True
	False

Question 9 (5 points)

According to the marginal productivity theory, the amount of income people will earn in their lives is influenced by how productive a person's labor is.

Question 9 options:

	True
	False

Question 10 (5 points)

The ability to pay principle of taxation implies that regressive taxes are more equitable than progressive taxes.

Question 10 options:

	True
	False

Answer 1

6) Tax laws affect both efficiency and equity. Efficiency is concerned with the optimal production and allocation of resources. When tax laws are enacted the the optimal allocation is disrupted as taxes creates a gap between demand and supply. Equity is concerned with distribution of resources in the society. When tax laws are enacted, it can change the structure of how resources are distributed. The answer is option (D).