Tax Rates Quiz

_______ equity conforms to the concept that people with a similar ability to pay taxes should pay the same or similar amounts.

Horizontal

Vertical equity usually refers to the idea that people with a _______ ability to pay taxes should pay more.

greater

Income taxes incorporate both horizontal and vertical equity via a _______ tax mechanism.

progressive

Sales taxes are _______ and are considered inequitable.

regressive Signup and view all the answers

The ratio of the amount of taxes paid to the tax base is known as the average tax _______.

rate Signup and view all the answers

The tax rate that applies to the last unit of currency of the tax base is called the marginal tax _______.

rate Signup and view all the answers

A proportional tax is imposed so that the tax rate is fixed, with no change as the taxable base amount ______ or decreases.

increases Signup and view all the answers

A regressive tax is imposed in such a manner that the tax rate decreases as the amount subject to taxation ______.

increases Signup and view all the answers

Tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of ______ and price elasticity of supply.

demand Signup and view all the answers

If the demand curve is inelastic relative to the supply curve, the tax will be disproportionately borne by the ______ rather than the seller.

buyer Signup and view all the answers

If a producer (consumer) is inelastic, it will produce (demand) the same quantity no matter what the ______.

price Signup and view all the answers

If the producer (consumer) is elastic, the producer (consumer) is very sensitive to ______.

price Signup and view all the answers

Match the following tax types with their descriptions:

Proportional tax = Tax rate is fixed, with no change as the taxable base amount increases or decreases Regressive tax = Tax rate decreases as the amount subject to taxation increases Progressive tax = Tax rate increases as the taxable base amount increases Average tax rate = Equals the ratio of total taxes paid to the total tax base Signup and view all the answers

Match the following concepts with their definitions:

Tax incidence = Depends on price elasticity of demand and price elasticity of supply Elasticity = Determines how sensitive producers or consumers are to price changes Marginal tax rate = Equals the change in taxes divided by the change in tax base Vertical equity = Refers to people with different ability to pay taxes paying different amounts Signup and view all the answers

Match the following statements about tax burden with their correct explanations:

If demand curve is inelastic relative to supply curve = Tax borne disproportionately by buyers rather than sellers If demand curve is elastic relative to supply curve = Tax borne disproportionately by sellers rather than buyers If a producer (consumer) is inelastic = Produces (demands) same quantity regardless of price If a producer (consumer) is elastic = Very sensitive to price changes Signup and view all the answers

Match the following tax-related terms with their definitions:

Average tax rate = The ratio of the amount of taxes paid to the tax base (taxable income or spending) Marginal tax rate = The tax rate that applies to the last unit of currency of the tax base (taxable income or spending), and is often applied to the change in one’s tax obligation as income rises Progressive tax = A tax by which the rate increases as the taxable base amount increases Regressive tax = A tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases Signup and view all the answers

Match the following terms related to elasticity with their descriptions:

Elastic = Sensitive to changes in price Inelastic = Not sensitive to changes in price Elasticity = The sensitivity of changes in a quantity with respect to changes in another quantity Inelasticity = The insensitivity of changes in a quantity with respect to changes in another quantity Signup and view all the answers

Match the following equity concepts with their definitions:

Horizontal equity = Conforms to the concept that people with a similar ability to pay taxes should pay the same or similar amounts Vertical equity = Refers to the idea that people with a greater ability to pay taxes should pay more Equity = Justice, impartiality or fairness Income tax = A tax levied on earned and unearned income, net of allowed deductions Signup and view all the answers

Match the following taxation systems with their characteristics:

Income tax = Incorporates both horizontal and vertical equity via a progressive tax mechanism Sales tax = Regressive and considered inequitable Proportional tax = Imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases Regressive tax = Imposed in such a manner that the tax rate decreases as the amount subject to taxation increases Signup and view all the answers

Match the following terms related to taxation burden with their implications:

Tax incidence = Determines the proportion of tax incidence between producers and consumers based on sensitivity between quantity and price Horizontal equity = Implies that people with a similar ability to pay taxes should pay equal amounts Vertical equity = Suggests that people with a greater ability to pay taxes should contribute more Elasticity of demand = Reflects how sensitive consumers are to price changes Signup and view all the answers

Match each term with its definition.

Equity = Justice, impartiality or fairness. Income tax = A tax levied on earned and unearned income, net of allowed deductions. elastic = Sensitive to changes in price. inelastic = Not sensitive to changes in price. Signup and view all the answers

What does horizontal equity in taxation refer to?

People with a similar ability to pay taxes should pay the same amounts. Signup and view all the answers

What is the main characteristic of a regressive tax system?

Tax rate decreases as the taxable base amount increases. Signup and view all the answers

Which tax type is associated with vertical equity in taxation?

Progressive tax Signup and view all the answers

What does the term 'inelastic' imply in economic terms?

Not sensitive to changes in price. Signup and view all the answers

What does the marginal tax rate apply to?

The change in one's tax obligation as income rises. Signup and view all the answers

Which characteristic best describes a progressive tax system?

Rate increases as the taxable base amount increases. Signup and view all the answers

What is the main difference between average tax rate and marginal tax rate in a progressive tax?

Average tax rate is fixed, while marginal tax rate varies. Signup and view all the answers

In a proportional tax system, the tax rate:

Remains fixed regardless of changes in taxable base amount. Signup and view all the answers

What does tax incidence primarily depend on?

The price elasticity of demand and supply. Signup and view all the answers

If a producer is inelastic, they will:

Remain insensitive to price changes in production. Signup and view all the answers

What happens if a consumer is elastic with respect to price?

They will demand more as price decreases. Signup and view all the answers

What is the main principle behind a laddered progressive income tax?

Income ranges dictate different tax rates. Signup and view all the answers

How does a proportional tax differ from a progressive tax?

Proportional taxes are levied in proportion to income within specific ranges. Signup and view all the answers

Under a laddered progressive tax system, why can income taxes become regressive for high earners?

High earners pay the same rate regardless of income level. Signup and view all the answers

How does the concept of vertical equity relate to the laddering of income tax rates?

It aligns with the idea that those capable of paying more should pay a higher proportion of their income. Signup and view all the answers

What characteristic defines horizontal equity in the context of taxation?

Similar abilities to pay result in similar tax payments. Signup and view all the answers

Why do high earners sometimes face a regressive tax burden under a laddered income tax system?

High earners pay decreasing proportions of their income as it rises. Signup and view all the answers