ec-18 - Homework #7 E201 Spring 2009 The problems below...

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Homework #7 E201 Spring 2009 The problems below draw from your growing knowledge of economics and the material in Chapters 6, 7, and 8. 1. If the government places a $500 tax on luxury cars, will the price paid by consumers rise more than $500, less than $500, or exactly $500? Explain. 2. The FICA tax funds Social Security programs. Congress established a 15.3% FICA tax rate; by law, the tax burden is split 50-50 between employer and employee. So, 7.65% of the employee’s earnings on each paycheck is deducted for FICA taxes, and 7.65% of the employee’s earnings is paid in FICA taxes by the employer. Is the economic incidence of the FICA tax shared equally by employer and employee? Explain. 3. It is a hot a day and Bert is very thirsty. Here is the value he places on a bottle of water: Value of first bottle $7 Value of second bottle 5 Value of third bottle 3 Value of fourth bottle 1 If the price of a bottle of water $4, how many bottles does Bert buy? How much consumer surplus does Bert get from his purchases? 4. Ernie owns a water pump. Because pumping large amounts of water uses more resources than pumping small amounts, the cost of producing rises as he pumps more. Below is the cost he incurs to produce each bottle of water:
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This note was uploaded on 04/19/2011 for the course ECON 200 taught by Professor Staff during the Winter '09 term at Indiana.

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ec-18 - Homework #7 E201 Spring 2009 The problems below...

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