Pre-Test Meeting 4

If the production of goods yields a negative externality, the social-cost curve lies _________ the supply curve and the socially optimal quantity is _________ than the equilibrium quantity

• above; less

• above; greater

• below; greater

• below; less

Command-and-control regulation may be better than a corrective tax if

• knowledge about the cost of pollution abatement is dispersed and hard to obtain.

• the negative externality is so large that the optimal quantity is zero.

• some polluters can reduce emissions more cheaply than others.

• a corrective tax would have differential effects on different industries.

The Coase theorem does NOT apply if

• there is a significant externality between two parties.

• the court system vigorously enforces all contracts.

• both parties understand the externality fully

• transaction costs make negotiation difficult.

Which categories of goods are excludable?

• private goods and club goods

• private goods and club goods

• private goods and common resources

• public goods and club goods

Which of the following is an example of a public good?

• residential housing

• national defense

• fish in the ocean

• restaurant meals

Which of the following is an example of a common resource?

• residential housing

• fish in the ocean

• national defense

• restaurant meals

Lump-sum taxes

• have a zero marginal tax rate

• are costly to administer

• impose large deadweight losses

• have a zero average tax rate

If the tax code exempts the first $20,000 of income from taxation and then taxes 25 percent of all income above that level, then a person who earns $50,000 has an average tax rate of _________ percent and a marginal tax rate of _________ percent.

• 15; 25

• 25; 15

• 25; 30

• 30; 25

In the United States, taxpayers in the top 1 percent of the income distribution pay about _________ percent of their income in federal taxes.

• 5

• 10

• 30

• 20

A toll is a tax on citizens who use toll roads. This policy can be viewed as an application of

• the benefits principle.

• horizontal equity.

• vertical equity

• tax progressivity