Chapter 5.A, Problem 3AQ

Many cities have taxes on products that are considered "bad," like cigarettes and alcohol.  These things may be bad for the individual who consumes them (in terms of lowered health), but also imposes costs on society if people who smoke need health care or people who drink cause accidents.  Taxes on these sorts of goods are sometimes referred to as "sin taxes."  The idea is that taxing the good will cause people to buy less of that bad (sinful) product.  Do you think these taxes work well do produce the desired effect of lowering consumption?  What factors may cause a tax to work better or worse as far as lowering consumption?  Would these factors cause more or less tax revenue to be raised?   If the goal is to reduce consumption, does tax revenue even matter?  Would a sin tax work as well on other products like sodas?  Why or why not? You don't have to answer every one of the questions I posed -- pick a couple/few that are of interest to you.  I threw a lot in there to get you…

In the past, some counties and countries have imposed taxes on sugar, saturated fats, and food made with those ingredients as a way to reduce consumption of those foods. Assume the government imposes a unit tax on all chocolate. Answer the following questions: Will consumers be able to shift this tax to sellers? If yes explain why/how. If no explain why not. Based on your answer to c, who will bear the incidence of this tax?

A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. True or False: This arrangement would most likely make workers worse off because the tax wedge would be larger. True False