Short free-response question

Who pays, and how equal?

Unit 6
5 points
About 12 minutes

You can use a calculator on this question, just like on exam day.

A shorter question with a few lettered parts on one situation, often built on a table, a payoff matrix or a given or described graph. You make claims, explain them, calculate a value, or describe a labeled graph and show a change on it. On the exam: Questions 2 and 3 of 3 in Section II; 5 points each, a quarter of the section score each. About 12 minutes suggested for each. Four-function calculator allowed.

The question and its sources

The country of Veloria has an income tax. The table shows the tax paid by three households.

Table 1. Income tax paid by three households in Veloria

Household	Annual income	Income tax paid
A	$20,000	$2,000
B	$50,000	$7,500
C	$100,000	$25,000

Source: Hypothetical data

Table 2. Gini coefficients for income

Country	Gini coefficient
Veloria	0.41
Norland	0.28

Source: Hypothetical data

Suggested time: 12 minutes

Your answers are saved in this browser as you type.

Part (a)

1 point

Calculate Household B's average tax rate. Show your work.

Your answer to part (a)

0 / 2,500 characters

Part (b)

1 point

Identify whether Veloria's income tax is progressive, proportional, or regressive. Explain using the data.

Your answer to part (b)

0 / 2,500 characters

Part (c)

1 point

Using Table 2, identify which country has the more equal distribution of income, and describe how that country's Lorenz curve compares with the other country's.

Your answer to part (c)

0 / 2,500 characters

Part (d)

1 point

Suppose Veloria uses its tax revenue to pay for transfer payments to its lowest-income households. Identify the effect on Veloria's Gini coefficient. Explain.

Your answer to part (d)

0 / 2,500 characters

Part (e)

1 point

Veloria also has a 6% sales tax on all food purchases. Explain why economists consider this sales tax regressive even though every buyer pays the same 6% rate.

Your answer to part (e)

0 / 2,500 characters

Checking scoring…

Scoring it yourself shows you the rubric, examples and a model answer. Try writing your answer first.