HO5_KeyF06 - Cal Poly Pomona EC 201 Principles of...

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Unformatted text preview: Cal Poly Pomona, EC 201 Principles of Microeconomics — Professor Brown Handout # 5 1) Draw two “Laffer Curves” on the same graph below. For curve 1, tax revenue decreases as the tax rate is reduced from 50% to 40%. For curve 2, tax revenue increases as the tax rate is reduced from 50% to 40%. Which curve assumes a greater increase in taxable income (“tax base”) because of the lower tax rate? Tax C WW2 asst/mgr) Revenue “i [11$ @0100 fr“ {1/10 N066" m ioxghie marine \L Tax Rate % a}; up}, 90 is £0099 2) C ircie the correct answer: The Laf‘fer curve assumes that as tax rates increase, the tax base: ii) Grows iii) Is Unchanged iv) It makes no assumption about tax base 3) The graph below shows the market for good X, initially with equilibrium quantity, Qx- = 22 and equilibrium price, P = 12. [8 22 Qx a) Show the effect ol'a 6 Slunit sales tax, legally collected from the buyers. b) What is the economic incidence ofthis tax, per unit, on buyers? 54-] /Ui u i- c) What is the economic incidence ofthis tax, per unit, on sellers? {laz- /Ui"i’* d) What is the price elasticity ofdemand between points A and B? . 7 I.) e) What is the price elasticity ofsupply between points B and C? ...
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