Free Public Finance MCQs with Answers
406 Public Finance MCQs from Economics, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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406 questions · page 16 of 21
- A. examples of Coase's theorem
- B. internalization of negative spillover effects
- C. marginal abatement cost
- D. examples of a free rider
Explanation: A tax or surcharge makes polluters bear part of the external cost they impose on society, bringing private costs closer to social costs.
Correct answer: internalization of negative spillover effects- A. attains the global optimal level of common property resource
- B. relies on internationally tradable emission permits
- C. minimizes free riders of public goods
- D. reduces ozone depletion through the cutting of chlorofluorocarbon production
Explanation: The Montreal Protocol is an international agreement designed to protect the ozone layer by phasing out chlorofluorocarbons and other…
Correct answer: reduces ozone depletion through the cutting of chlorofluorocarbon production- A. The tax burden generated from a tax placed on a good consumer perceive to be a necessity will fall most heavily on the sellers of the good
- B. The burden of a tax falls on the side of the market (buyers or sellers) from which it is collected
- C. The distribution of the burden of a tax is determined by the relative elasticities of determined by legislation.
- D. The tax burden falls most heavily on the side of the market (buyers and sellers) that is most willing to leave the market when price movements are unfavorable to them.
Explanation: Tax incidence depends on the relative elasticities of demand and supply, not on which side legally remits the tax.
Correct answer: The distribution of the burden of a tax is determined by the relative elasticities of determined by legislation.304. A tax placed on a good that is a necessity for consumers will likely generate a tax burden that ?
- A. falls more heavily on sellers
- B. falls entirely on sellers
- C. falls more heavily on buyers.
- D. is evenly distributed between buyers and sellers.
Explanation: A necessity usually has relatively inelastic demand, so buyers reduce their purchases only slightly when its price rises.
Correct answer: falls more heavily on buyers.- A. the tax burden falls most heavily on the buyers.
- B. the buyers bear the burden of the tax
- C. the sellers bear the burden of the tax
- D. the tax burden on the buyers and sellers in the same as an equivalent tax collected from the sellers
Explanation: Legal collection from buyers does not determine economic incidence, because the market price adjusts.
Correct answer: the tax burden on the buyers and sellers in the same as an equivalent tax collected from the sellers- A. demand curve downward by the size of the tax per unit.
- B. supply curve downward by the size of the tax per unit
- C. demand curve upward by the size of the tax per unit.
- D. supply curve upward by the size of the tax per unit
Explanation: A tax collected from sellers raises the cost of supplying each unit, shifting the supply curve upward by the per-unit tax.
Correct answer: supply curve upward by the size of the tax per unit- A. centralized firms
- B. government oligopolies
- C. market economies
- D. public enterprises
Explanation: State-owned enterprises are owned or controlled by the government, so they are commonly called public enterprises.
Correct answer: public enterprises- A. SOEs perform better with competition
- B. Successful performing SOEs in Japan, Singapore and Sweden have greater managerial autonomy and accountability than other SOEs
- C. SOEs in South Korea and Sweden generally achieve inferior economic results to those in Ghana
- D. Financial autonomy is a major factor contributing to SOEs managerial effectiveness
Explanation: The statement about South Korean and Swedish SOEs being inferior to Ghanaian SOEs is false; the successful examples generally perform…
Correct answer: SOEs in South Korea and Sweden generally achieve inferior economic results to those in Ghana- A. there is a budget deficit
- B. None of these answers
- C. There is a budget surplus
- D. private saving is positive
Explanation: A budget deficit occurs when government spending exceeds its tax revenue, requiring borrowing or another source of finance.
Correct answer: there is a budget deficit- A. subsidies to encourage firms that moves
- B. tax concessions for firms that move.
- C. improved infrastructure
- D. all of the above
Explanation: Governments can reduce regional imbalance through subsidies, tax concessions, and improved infrastructure, since each can attract firms…
Correct answer: all of the above- A. bureaucracy
- B. bad luck
- C. poor communications
- D. the low level of government grants and by the fact that some projects would have gone ahead anyway
Explanation: Regional and urban policies may have limited results because grants are often too small and some supported projects would have occurred…
Correct answer: the low level of government grants and by the fact that some projects would have gone ahead anyway- A. New classical economists.
- B. Left wing theorists
- C. interventionist policies.
- D. monetarists.
Explanation: Wage subsidies, lower business taxes, and capital subsidies are government interventions designed to stimulate employment and investment…
Correct answer: interventionist policies.- A. Compound tariff
- B. Effective tariff
- C. Ad valorem tariff
- D. Specific tariff
Explanation: A specific tariff is a fixed money charge per physical unit, such as Rs20 per unit of cheese.
Correct answer: Specific tariff- 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.
Explanation: Progressivity concerns tax burdens as a percentage of income: higher-income taxpayers pay a larger percentage than lower-income taxpayers.
Correct answer: higher income taxpayers pay a greater percentage of their income in taxes than do lower income taxpayers.- A. marginal tax rate
- B. average tax rate
- C. horizontal tax rate
- D. proportional tax rate
Explanation: Vertical equity compares the tax treatment of people at different income levels, so the average tax rate shows each group's overall tax…
Correct answer: average tax rate316. An efficient tax ?
- A. minimizes the administrative burden form the tax
- B. does all the things describe in these answers
- C. raises revenue at the smallest possible cost to taxpayers.
- D. minimize the deadweight loss from the tax.
Explanation: An efficient tax raises revenue while imposing the least total cost, including taxpayers' compliance and administrative costs and the…
Correct answer: does all the things describe in these answers- A. the deadweight has demonstrated
- B. the ability-to-pay principle
- C. the benefits principle
- D. horizontal equity
- E. The administrative burden of a tax.
Explanation: Sana values the jeans at Rs400 but refuses to buy them at Rs450, so a mutually beneficial transaction is prevented by the tax.
Correct answer: the deadweight has demonstrated- A. caused a deadweight loss
- B. decreased equity
- C. generated no tax revenue
- D. increased efficiency
Explanation: When a tax reduces the quantity traded below the efficient level, the gains from trades that no longer occur are lost.
Correct answer: caused a deadweight loss- A. doubles
- B. stays the same
- C. increase by a factor of four.
- D. could rise or fall
Explanation: Under the standard linear supply-and-demand model, deadweight loss is proportional to the square of the tax wedge.
Correct answer: increase by a factor of four.- A. will fall
- B. will rise
- C. will first rise and then fall
- D. will first fall and then rise
Explanation: A small tax initially raises revenue, but progressively higher taxes eventually shrink the tax base as buying, selling, or production is…
Correct answer: will first rise and then fall