Principles of Economics- Mankiw (5th) 171

Principles of Economics- Mankiw (5th) 171 - CHAPTER 8 A P P...

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CHAPTER 8 APPLICATION: THE COSTS OF TAXATION 177 7. Senator Daniel Patrick Moynihan once introduced a bill that would levy a 10,000 percent tax on certain hollow- tipped bullets. a. Do you expect that this tax would raise much revenue? Why or why not? b. Even if the tax would raise no revenue, what might be Senator Moynihan’s reason for proposing it? 8. The government places a tax on the purchase of socks. a. Illustrate the effect of this tax on equilibrium price and quantity in the sock market. Identify the following areas both before and after the imposition of the tax: total spending by consumers, total revenue for producers, and government tax revenue. b. Does the price received by producers rise or fall? Can you tell whether total receipts for producers rise or fall? Explain. c. Does the price paid by consumers rise or fall? Can you tell whether total spending by consumers rises or falls? Explain carefully. (Hint: Think about elasticity.) If total consumer spending falls, does consumer surplus rise? Explain.
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