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taxation MCQs

Practise focused taxation questions with marked answers for exam preparation and subject revision.

taxation Mcqs
1. The ability-to-pay principle of taxation suggests that if a tax system is to be vertically equitable it should be ?
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A. regressive

B. proportional

C. progressive

D. efficient

2. The graph that shows the relationship between the size of a tax and the tax revenue collected by the government is known as a ?
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A. Laffer curve

B. Reagan curve

C. Keynesian curve

D. Henry George curve.

E. none of these answers

3. The reduction of tax ?
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A. will always reduce tax revenue regardless of the prior size of the tax

B. causes a market to become less efficient

C. will have no impact on tax revenue.

D. could increase tax revenue if the tax had been extremely high
4. Sana values a pair of blue jeans at Rs400. If the price is Rs350 Sana buys the jeans and generates consumer surplus of Rs50 Suppose a tax is placed on blue jeans that causes the price of blue jeans to rise to Rs450 Now sana chooses not to buy a pair of?
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A. the ability-to-pay principle

B. horizontal equity

C. the deadweight has demonstrated

D. the benefits principle

E. The administrative burden of a tax.

5. Refer to Exhibit 4. If there is no tax placed on the product in this market, producer surplus is the area ?
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A. C + F

B. A + B + E

C. D

D. C + D + F
6. An efficient tax ?
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A. minimize the deadweight loss from the tax.

B. does all the things describe in these answers

C. raises revenue at the smallest possible cost to taxpayers.

D. minimizes the administrative burden form the tax

7. A tax system is regarded as horizontally equitable if ?
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A. all taxpayers pay the same amount of tax

B. the system comprises only lump sum taxes

C. taxes are as low as possible

D. taxpayers with similar abilities to pay taxes pay the same amount

E. taxes on all goods are levied at the same rate

8. Refer to Exhibit 4. If a tax is placed on the product in this market consumer surplus is the area ?
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A. A

B. A + B + E

C. D

D. A + B +C + D

9. A tax on petrol is likely to ?
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A. cause a greater deadweight loss in the short run when compared to the long run.

B. generate a deadweight loss that is unaffected by the time period over which it is measured

C. cause a greater deadweight loss in the long run when compared to the short run

D. None of these answers

10. When a tax distorts incentives to buyers and sellers so that fewer goods are produced and sold than otherwise the tax has ?
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A. decreased equity

B. increased efficiency

C. generated no tax revenue

D. caused a deadweight loss
11. The average tax rate is ?
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A. the extra taxes paid on an additional dollar or income.

B. total income divided by total taxes paid

C. the taxes paid by the marginal worker

D. total taxes paid divided by total income
12. Deadweight loss is greatest when ?
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A. supply is elastic, and demand is perfectly inelastic

B. demand is elastic, and demand is perfectly inelastic

C. both supply and demand are relatively inelastic

D. both supply and demand are relatively elastic
13. Refer to Exhibit 4. If a tax is placed on the product in this market. deadweight loss is the area ?
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A. E + F

B. B + C + E + F

C. B + C

D. A + B + C + D

14. The marginal tax rate is ?
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A. the extra taxes paid on an additional unit of income

B. total taxes paid divided by total income

C. total income divided by total taxes paid

D. the taxes paid by the marginal worker

15. If the Pakistani government runs a budget surplus there is ?
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A. an excess of government spending over government receipts.

B. a surplus of government workers.

C. an equality of government spending and receipts.

D. an excess of government receipts over government spending.
16. Refer to Exhibit 4. If there is no tax placed on the product in this market total surplus is the area ?
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A. E + F

B. B + C + E + F

C. A + B + C + D + E + F

D. A + B + C + D

17. The appropriate tax rate to consider gauging how much the tax system distorts incentives and decision making is the ?
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A. marginal tax rate

B. average tax rate

C. horizontal tax rate

D. vertical tax rate

E. Proportional tax rate

18. Refer to Exhibit 4. If there is no tax placed on the produced in this market consumer surplus is the area ?
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A. C + D + F

B. A + B + E

C. D + C + B

D. A

19. If a tax on a good is doubled the deadweight loss from the tax ?
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A. could rise or fall

B. doubles

C. increase by a factor of four.

D. stays the same

20. Refer to Exhibit 4. If a tax is placed on the product in this market total surplus is the area ?
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A. A + D

B. B + C + E + F

C. A + B + C + D

D. A + B + C + D+ E +F

21. Which of the following taxes can be supported by the benefits principle of taxation ?
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A. All these answers can be supported by the benefits principle of taxation

B. property taxes used to pay for policies and the court system

C. Petrol taxes used to pay for roads

D. Progressive income taxes used to pay for national defense

22. Refer to Exhibit 4. Which of the following is true with regard to the burden of the tax in Exhibit 4 ?
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A. The sellers pay a larger portion of the tax because supply is more inelastic than demand

B. The buyers pay a larger portion of the tax because demand is more inelastic than supply

C. The buyers pay a larger portion of the tax because demand is more elastic then supply

D. The sellers pay a larger portion of the tax because supply is more elastic than demand

23. A progressive tax system is one where ?
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A. marginal tax rates are high.

B. higher income taxpayers pay more taxes than do lower income taxpayers.

C. marginal tax rates are low.

D. higher income taxpayers pay a greater percentage of their income in taxes than do lower income taxpayers.
24. Which of the following would likely cause the greatest deadweight loss ?
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A. a tax on cruise line tickets

B. a tax on salt

C. a tax on petrol

D. a tax on cigarettes

25. Refer to Exhibit 4. If a tax is placed on the product in this market, producer surplus is the area?
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A. A + B + C + D

B. A

C. A + B + E

D. D
26. Since the supply of undeveloped land is relatively inelastic a tax on undeveloped land would generate ?
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A. a small deadweight loss and the burden of the tax would fall on the renter

B. a large deadweight loss and the burden of the tax would fall on the renter.

C. a large deadweight loss and the burden of the tax would fall on the landlora

D. a small deadweight loss and the burden of the tax would fall on the landlord
27. Refer to Exhibit 4. If a tax is placed on the product in this market tax revenue paid by the buyers is the area ?
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A. B + C

B. B + C + E + F

C. A

D. B
28. When a tax on a good start small and is gradually increased tax revenue ?
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A. will fall

B. will first fall and then rise

C. will first rise and then fall

D. will rise

29. A tax for which high income taxpayers pay a smaller fraction of their income than do low income taxpayers is known as ?
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A. a regressive tax

B. a proportional tax

C. an equitable tax

D. a progressive tax

30. Refer to Exhibit 4. If a tax is placed on the product in this market tax revenue paid by the sellers is the area ?
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A. C + F

B. B

C. A

D. C
31. The appropriate tax rate to consider judging the vertical equity of a tax system is the ?
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A. proportional tax rate

B. marginal tax rate

C. average tax rate

D. horizontal tax rate

32. Which of the following is true with regard to a tax on labor income? Taxes on labor income tend to encourage ?
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A. second earners to stay home.

B. the elderly to retire early.

C. all the things described in these answers.

D. the unscrupulous to enter the underground economy

E. workers to work fewer hours