a,b,c,d Note that MUX-Y and MUX-XCharlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government iscontemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The governmentwants to know which policy Charlie would prefer for a given amount of tax revenue.a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?Comparing a Quantity tax to an Income taxb. Assume the government imposes a quantity tax of $1 for each X he buys. How many X will he consume? Y?C.Fill in the first two empty rows in the table below to show the consumption and utility under each case.XYUNo taxQuantity tax of $1Income tax of $.....d. What is the income tax that is equivalent to the quantity tax of $1?e.Is the consumption bundle under the quantity tax affordable under the income tax?f. Fill in the last row in the above tableg. Represent the two policies in the graph below. Which one should the government use?

Utility function : U = X*Y Px = Py = 1 Therefore , Budget Constraint : x + y = 100 Optimal…

Note that MUX-Y and MUX-X Comparing a Quantity tax to an Income tax Charlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government is contemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The government wants to know which policy Charlie would prefer for a given amount of tax revenue. a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?

Note that MUX-Y and MUX-X Comparing a Quantity tax to an Income tax Charlie's utility over X and Y is given by U=XY. The prices of each good is $1 and his income is $100. The government is contemplating whether to use an income tax or a quantity tax to collect some money from Charlie. The government wants to know which policy Charlie would prefer for a given amount of tax revenue. a. How much of his income will Charlie allocate for good X? What is the demand for X? the demand for Y?

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 2DQ

See similar textbooks

Similar questions

In his fiscal year(FY0 2015 budget proposal, President Obama envisions another hike in the federal excise tax on cigarettes. He engineered a tripling of the tax-form 39 cents to $1.01 per pack- in 2009. Now he wants to hike the tax by another 94 cents, to $1.95 per pack. It's easy to see why Obama(himself a smoker) likes the idea. The 2009 tax hike brought an extra $9 billion a year into the U.S. treasury, it also reduced smoking and smoking-related health costs. This time around the Congressional Budget office projects a 94 cent tax hike will increase federal revenue by $78 billion over ten years, helping to bring down project deficits. The CBO also projects that the higher price will reduce the number of smokers by 2.5 million and the number of smoking-related deaths by 18,000 over the same period. Smokers don't like the idea at all,of course.Nor do the states,which will see their own tax revenues decline along with the cigarette sales. and convenience stores like 7-Eleven will see a…
Taxation 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 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? (c) Can you identify any government revenues? (d) Is there any 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 burden? Explain.
Taxation 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 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?
Taxation Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? (b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? (c) If the producer has an inelastic supply curve, which market participant has the bigger tax burden? Explain.
Use graph to explain Suppose prices are PA = 2, PB = 1 and income is n = 100. (a) Show with the graph change in the budget set if the price of x decreased and price of y increased such that P 0 A = 1 and P 0 B = 2. (b) Suppose that the nation taxes (at the new set of prices P 0 A = 1 and P 0 B = 2) the consumer an extra 0.50 dollar for each unit of x he buys beyond 70 units. That is, no tax is collected for units x < 70, and 0. 50$ tax for each x ≥ 70. Show the new budget set in the graph.
Let us consider two types of goods in an economy: demerit goods and all other goods. The government is concerned with the excessive consumption of demerit goods in an economy and therefore decides to levy a commodity tax such that the tax burden is fully borne by the consumers. Explain with the help a well-labelled diagram the distortions created by such commodity tax on demerit goods assuming the same effect on individual welfare. What determines the size of the distortions in this case? PLEASE INCLUDE DIAGRAM
An increase in..........will increasesupplySelect one:O a. TaxesO b. Income of consumers.SubsidiesO dd. Number of consumers
Miller wants to discourage energy drink purchase, so he's considering a $1 tax or $2 tax on the drink. 1. Is Sen. Miller's plan for a two dollar tax better at stopping consumers from purchasing energy drinks? Why or why not? Incorporate your knowledge of the Laffer Curve in your response.
4. Suppose that a consumer has the utility function U(x, y) = xy, where x denotes the quantityof good X and y denotes the quantity of good Y . Let the per unit prices be pX = 4 and pY = 1.Also, suppose that income is m = 100. Show that the consumer’s welfare has increased under the income tax scheme as com-pared to the indirect tax scheme. Illustrate your answer with a diagram.
if the goverment places a $1 tax on each jar of applesauce purchased, why doesnt the price rise by a dollar as well?