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8 May, 2015 - 10:57

The tax incidence shows who really bears the burden of a tax. Because taxes can be shifted from one person to another, tax schemes which appear to be progressive may be regressive in reality. This is the case for property taxes, which are technically paid by the landlord, but charged to the tenant as part of the rent.

It is sometimes argued that the Corporate Income Tax incidence falls on consumers and not on corporations because the corporations, although liable for the tax, are able to increase the price of their products.

Review Quiz

  1. Which of the following is NOT an income redistribution government role?
    1. unemployment benefits,
    2. antitrust laws,
    3. social security,
    4. welfare.
  2. Which of the following activity is part of the social framework role of government?
    1. labelling of products,
    2. national defense,
    3. social security,
    4. medicaid.
  3. The incidence of the property tax is commonly shifted to
    1. renters,
    2. landlords,
    3. government agencies,
    4. tax assessors.
  4. The Federal Government derives most of its revenues from
    1. corporate income tax,
    2. sales tax,
    3. property tax,
    4. personal income tax.
  5. What proportion of income comes from human resources?
    1. 2O%,
    2. 33%,
    3. 5O%,
    4. 8O%.
  6. An example of tax based on the benefit received principle is
    1. tobacco excise tax,
    2. inheritance tax,
    3. sales tax on non-food items,
    4. gasoline excise tax to finance highway construction.
  7. The major advantage of the corporate form of business is
    1. limited liability,
    2. combining skills,
    3. decision effectiveness,
    4. avoidance of double taxation.
  8. Taking advantage of allowable deductions to reduce taxes is known as
    1. tax avoidance,
    2. underground economy,
    3. tax evasion,
    4. fraud.
  9. Which of the following are necessary for mass production?
    1. substitute goods,
    2. public goods,
    3. complementary goods,
    4. capital goods.
  10. True or False: In proportion to their income, the wealthy families spend less on consumption than the low income
    1. families.
    2. true,
    3. false,
    4. no valid answer.
  11. With bartering without using money, the level of economic activity will
    1. become more stable,
    2. decrease,
    3. increase,
    4. increase or decrease.
  12. The process by which firms make decisions about production, seeking their selfish interests but ending up providing consumers with the goods most wanted, is known as the
    1. invisible hand,
    2. production possibilities,
    3. spillover effect,
    4. redistribution of output.
  13. Competition, essential for capitalism, requires
    1. few firms of equal and large size,
    2. free entry and exit of many small firms,
    3. firms producing products which are not quite the same,
    4. government setting official prices.
  14. The presence of clear benefits and hidden costs, makes
    1. public goods more profitable,
    2. politicians more sensitive,
    3. profits more accurate,
    4. government role easier to evaluate.
  15. What principle of taxation is based on the observation that the sacrifice from foregone consumption is greater for poorer families?
    1. ability to pay,
    2. tax incidence,
    3. benefit received,
    4. revenue sharing.
  16. The personal distribution of income is affected above all by
    1. season,
    2. government intervention,
    3. region,
    4. resource ownership.
  17. Which of the following is not characteristic of mixed capitalism?
    1. division of labor,
    2. self interest,
    3. no government intervention in the economy,
    4. use of money.
  18. A higher tax rate on a higher income causes a tax to be
    1. proportional,
    2. progressive,
    3. regressive,
    4. incident.
  19. Which is not characteristic of pure capitalism?
    1. private property,
    2. freedom,
    3. self interest,
    4. important government role.
  20. The largest portion of the Federal Government expenditures is
    1. education,
    2. police protection,
    3. social security and health,
    4. NASA.


  1. B
  2. A
  3. A
  4. D
  5. D
  6. D
  7. A
  8. A
  9. D
  10. A
  11. B
  12. A
  13. B
  14. B
  15. A
  16. D
  17. C
  18. B
  19. D
  20. C


  1. Study the functional and personal distribution of income. Indicate how these can affect the overall level of economic activity.
  2. Compare the various forms of business organization. Prove that the corporate form is dominant in any capitalistic society.
  3. Outline the 2 principles of taxation. Give examples of each. Show how the principles are applied in income and sales taxes.
  4. Explain what is the incidence of a tax. Show how the incidence of various taxes is indeed shifted.
  5. Outline the major revenue sources and expenses of the Federal Government. Do the same for state and local governments.