Answered: Because workers tend to work more when…

Because workers tend to work more when their after-tax wage increases, the government can increase tax revenue by cutting taxes.

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter17: Taxation And Resource Allocation

Section: Chapter Questions

Problem 1DQ

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a) The government decides to impose a unit-tax on producers instead of a unit-sales tax on consumers, arguing that this will protect consumers from negative effects of the tax. Your response to this statement should be that O This is incorrect reasoning, because consumers actually will be affected more by the tax on production than a sales tax O This is incorrect reasoning, because consumers are always hit harder by a sales tax O This is incorrect reasoning, because it doesn't matter whether the tax is imposed on sales or production, the impact is the same O This is the correct reasoning, because consumers do not pay for the production. b) Tom likes eBooks and iTunes. eBooks cost $4 and provide a marginal utility of 10; iTunes cost $1 and provide a marginal utility of 3. To maximize utility for the given budget, Tom should O Buy more eBooks and fewer iTunes O Buy fewer eBooks and more iTunes O Not change his current consumption choice
Suppose that the government imposes a tax on heating oil.Would the deadweight loss of this tax likely be greater in the first year after it is imposed or in the fifth year? Would the tax revenue collected from this tax likely be greater in the first year after it is imposed or in the fifth year? A. The deadweight loss and tax revenue would both be greater in the first year than the fifth. B. The deadweight loss would be greater in the first year than the fifth, but the tax revenue would be greater in the fifth year than the first. C. The deadweight loss would be greater in the fifth year than the first, but the tax revenue would be greater in the first year than the fifth. D. The deadweight loss and tax revenue would both be greater in the fifth year.
Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. a. Draw a supply and demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by produers? b.Draw a supply and demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? C. Can you identify and government revenues? d. Is there and inefficiency, and if so, can you define it and label it on the graph? e. If the producer has an inelastic supply curve, which market participant has the bigger tax brden? Explain.
Suppose that the government imposes a tax onheating oil.a. Would the deadweight loss from this tax likely begreater in the first year after it is imposed or in thefifth year? Explain.b. Would the revenue collected from this tax likely begreater in the first year after it is imposed or in thefifth year? Explain.
Say a producer is taxed $t on every unit of output sold. Explain how the burden of that tax ends up being shared by the producers and consumers of the good and what it is that determines the distribution of burden between producers and consumers. Illustrate graphically.
Both a payroll tax and an excise tax on alcoholraise revenue and, respectively, shrink the marketsfor labor and alcohol. Although both have somefunctions in common, governments may havedifferent goals when levying them. What goalsdo you think motivate a payroll tax? What goalsmotivate an alcohol tax?
Subsidies, unlike taxes, tend to increase the quantities of goods and/or services traded and consumers tend to pay a lower price for the good. From this perspective, the benefits for consumers are evident, while the effects for producers are not so conclusive. In this context, what would be the effect(s) that subsidies have on producers?I. Subsidies positively affect the quantity supplied, but the producer must pay the subsidy.II. Market prices increase.III. Producers increase the quantity offered, but the price they charge is the one that corresponds according to their supply function.Select one:a. II and IIIb. III onlyc. I, II and IIId. I and IIIe. I only
Assume the government imposes a $2.00 tax on a good that costs $5.00. If the price buyers pay increases to $6.50 and the price sellers receive decreases to $4.50, who bears the greater burden of the tax? a. sellers b. buyers c. neither, the burden is split evenly
Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (In fact, both the federal and state governments impose beer taxes of some sort.)a. Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers?b. Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?
What would cause a fall in the tax base? OA. The number of residents earning income fell. B. Incomes of city residents fell. C. Either of the above.
Suppose that the government decides to charge cola consumers an excise tax. Before the tax, 12 million cases of cola are sold every month at a price of $3.50 per case. After the tax, 6million cases of cola are sold every month; consumers pay $4.00 per case and producers receive $2.00 per case. a. What is the excise tax on cola?b. On whom does the incidence of the tax fall more heavily?c. How much government revenue will be generated by the excise tax?
Whichofthefollowingstatementsis(are)correct? (x) A payroll tax is a tax on the wages that a firm pays its workers and in the United States the payroll tax is also referred to as a social insurance tax. (y) The payroll tax differs from the individual income tax in the U.S. because the payroll tax is primarily earmarked to pay for Social Security and Medicare. (z) Taxes on specific goods such as cigarettes, gasoline, alcoholic beverages and tires are called excise taxes. (x), (y) and (z) (x) and (y) only (x) and (z) only (y) and (z) only (x) only