Consider a System in Which a Person Earning $10,000 Pays

question 62

Multiple Choice

Consider a system in which a person earning $10,000 pays $1,000 in taxes, a person earning $25,000 pays $1,000 in taxes, and a person earning $60,000 pays $1,000 in taxes. Identify the correct statement.

• A) This is an example of regressive taxation.
• B) This is an example of proportional taxation.
• C) This is an example of progressive taxation.
• D) This is an example of a tax based on the benefits-received principle.
• E) This is an example of a Pigouvian tax.

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Definitions:

Neoclassical Economics

The dominant and conventional branch of economic theory that attempts to predict human behavior by building economic models based on simplifying assumptions about people’s motives and capabilities. These include that people are fundamentally rational; motivated almost entirely by self-interest; good at math; and unaffected by heuristics, time inconsistency, and self-control problems.

Rational Decision

Made when an individual, with clear set objectives, uses logic and all available information to choose the best possible outcome from various alternatives.

Error-free Decisions

Decisions that are made without any mistakes, often considered an ideal or theoretical concept in decision-making processes.

Impulse Buying

The act of purchasing items on the spur of the moment, often without prior planning.