BA 372 Lesson 4 Assignment 5

BA 372 Lesson 4 Assignment 5 - Ashley B. Hilliard...

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Ashley B. Hilliard 258-10-0169 July 5, 2010-October 22, 2010 BA 372 Lesson#4, Assignment 5 1. Why do experts disagree about whether labor taxes have small or large deadweight losses? Some experts believe that labor supply is inelastic so a tax on labor would have a small deadweight loss. On the other hand other experts believe that workers can adjust their hours worked in various ways. So then the labor supply is elastic and a tax on labor has a large deadweight loss. 2. After economics class one day, your friend suggests that taxing food would be a good way to raise revenue because the demand for food is quite inelastic. In what sense is taxing food a "good" way to raise revenue? In what sense is it not a "good" way to raise revenue? It is true that a food tax raises revenue. The price elasticity of demand for food is very low that is why food demand is price inelastic. At the minimum quantity of food that a person required to survive on, someone might claim that the demand for food is absolutely inelastic. With inelastic demand, the imposition of a tax on food can raise considerable revenue. Although
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This note was uploaded on 02/22/2011 for the course ECON BA 372 taught by Professor Dickliter during the Summer '10 term at Andrew Jackson.

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BA 372 Lesson 4 Assignment 5 - Ashley B. Hilliard...

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