Q: Which of the following equations correctly represents the calculation of average tax rate?

$\text{Average Tax Rate} = \frac{\text{Total Tax Paid}}{\text{Total Taxable Income}}$

Question 1

Which of the following best describes a negative externality?

Accepted Answer

A cost imposed on third parties not involved in a transaction.

Question 2

Suppose a steel factory emits pollution that causes health problems for nearby residents. If the market price of steel does not reflect these external costs, what is the likely market outcome?

Accepted Answer

The market will overproduce steel.

Question 3

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

Accepted Answer

National defense.

Question 4

What is the 'free rider problem' most closely associated with?

Accepted Answer

Public goods that are non-rivalrous and non-excludable.

Question 5

A government imposes a pollution tax on a factory equal to the external cost of pollution. What is the intended effect of this policy?

Accepted Answer

To make the price reflect the full social cost and reduce overproduction.

Question 6

Which of the following best describes a positive externality?

Accepted Answer

A benefit received by third parties not involved in a transaction.

Question 7

During the COVID-19 pandemic, governments subsidized vaccine production. What market failure was this policy intended to address?

Accepted Answer

Positive externalities from vaccination.

Question 8

Which of the following is a characteristic of a private good?

Accepted Answer

Rivalrous and excludable.

Question 9

Suppose the government provides a subsidy for education because it generates external benefits. What is the expected effect on the market for education?

Accepted Answer

The demand curve will shift right, increasing quantity.

Question 10

Which of the following equations correctly represents the calculation of average tax rate?

Accepted Answer

$	ext{Average Tax Rate} = \frac{	ext{Total Tax Paid}}{	ext{Total Taxable Income}}$

Question 11

A person earns $52,000 in taxable income. The first $43,953 is taxed at 15%, and the remainder at 22%. What is the marginal tax rate for this individual?

Accepted Answer

$22\%$

Question 12

Which of the following best describes a regressive tax?

Accepted Answer

A tax where the average tax rate decreases as income increases.

Question 13

If a good is non-excludable but rivalrous, which of the following is the best example?

Accepted Answer

A fishery in the open ocean.

Question 14

Which of the following is a primary economic function of government in a market economy?

Accepted Answer

Correcting for externalities.

Question 15

A government wants to encourage the consumption of a good with positive externalities. Which policy is most appropriate?

Accepted Answer

Provide a subsidy for the good.

Question 16

Which of the following best explains why public goods are underprovided by the private market?

Accepted Answer

Because of the free rider problem.

Question 17

Suppose the government introduces a progressive tax system. Which of the following statements is true?

Accepted Answer

The average tax rate increases as income increases.

Question 18

Which of the following is an example of a government transfer payment?

Accepted Answer

A monthly Old Age Security benefit.

Question 19

If the government sets the price of health care services below the equilibrium price, what is the likely result?

Accepted Answer

A shortage of health care services.

Question 20

Which of the following equations correctly represents the calculation of marginal tax rate?

Accepted Answer

$	ext{Marginal Tax Rate} = \frac{\Delta 	ext{Tax Paid}}{\Delta 	ext{Taxable Income}}$

Microeconomics Study Notes: Market Failures, Public Goods, and the Public Sector (ECON1110, Chapter 5)

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