The City of Philadelphia is currently considering a 3 cent per ounce tax on sugary beverages. A member of the City Council happens to have majored in economics and suggests that the city also consider an equivalent lump-sum tax that generates the same revenue. (a) Which sort of tax would a consumer prefer, and why? Draw a graph comparing the two taxes to help illustrate your answer. (b) Which sort of tax would an economist prefer, and why? (c) Which sort of tax might a politician prefer, and why?

Question
Asked Dec 11, 2019
1 views

The City of Philadelphia is currently considering a 3 cent per ounce tax on sugary beverages. A member of the City Council happens to have majored in economics and suggests that the city also consider an equivalent lump-sum tax that generates the same revenue. (a) Which sort of tax would a consumer prefer, and why? Draw a graph comparing the two taxes to help illustrate your answer. (b) Which sort of tax would an economist prefer, and why? (c) Which sort of tax might a politician prefer, and why?

check_circle

Expert Answer

Step 1

a)

Consumers are prefers lump-sum tax. The reason is, the burden of tax is partially borne by both the consumers and producers. The effect of imposition of tax is shown in below figure.

help_outline

Image Transcriptionclose

S+ Tax Price Quantity

fullscreen
Step 2

The imposition of tax effect the price level in the economy and supply of goods. The comparison of effects of two taxes is shown in below figure.

help_outline

Image Transcriptionclose

S' = MC + T E: P. D. Q, a, Food per Year Clothing per Year Price Price

fullscreen
Step 3

b)

If the producer prefer a specific tax rate, it is directly passed to the consumer. That is, imposing tax increase the...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: 18

A: Hello, since you have posted multiple questions and not specified which question needs to be solved,...

question_answer

Q: Consider the classical open-economy macroeconomic model. Explain how a Federal Reserve action such a...

A: An increase in money supply due to buying bonds by the federal reserve will be going to impact the m...

question_answer

Q: Consider the possibility that government spending increases the amount of hours to be worked in a gi...

A: Consumption:In economics, consumption refers to the utilize of goods and services. However, consumpt...

question_answer

Q: Consider a simple economy that produces only pies. The following table contains information on the e...

A: Click to see the answer

question_answer

Q: What's the answer for letter C and D

A: c) If 10% of the borrowers from happy bank default that means this amount of bank loan is now worthl...

question_answer

Q: Pindyck & Rubinfeld, 8e. Ch 8 #7. Suppose the same rm's cost function is C(q) = 4q 2 + 16. (Fro...

A: The total cost function is given to be:

question_answer

Q: The text notes that changes in oil prices can affect the inflation-unemployment outcome. Explain wha...

A: Fluctuation in oil prices have a direct impact on inflation. Generally the rise in prices of oil and...

question_answer

Q: Causes and effects of low interest rates

A: To determine the causes and effects of low interests rates.

question_answer

Q: A number of countries, like Greece and the United Kingdom, have in the past few years responded to g...

A: The government when undertakes an austerity policy by cutting its own expenditure and also increasin...