pubsec-anstoex3 - BRANDEISLINIVERSITY Department f...

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Economics 134 Public Sector Mr. Coiner Spring,2010 1. a) sellers will bear l/4 of the tax, or 50 cents. The price they receive will fall to $4.50 b) the DWL is (l/2)(product of elasts/sum of elasts)(tax squared)(Q/P) , where the elasticity of demand is expressed as its absolute value (1, not -1) DWL : (lt2)(3t4x4)(1000/s): $300 2. a) You get to deposit $700, earn $70 interest, and then pay $21 tax on the interest. You end up with $749 b) You deposit $1000, earn $100 $330 tax on the full $l100, ending up with $770 3. a) the marginal effect is 25 cents b) the inframarginal effect is the lost tax revenue on the 75 cents, but this is not trivial to calculate because tax on this is only delayed, not lost forever. You'd really want to know the present value of the lost tax revenue on the 75 cents. 4. a) the marginal cost is (.12 +.08X1 - (1/3X.6) .l) (.20)(.7): .14 b) MB after taxes is (2/3)(9000 0.03K):6000 0.02K. Setting this equal to .14 and solving for K gives K: $299,993 c) The firm receives2l3 of the benefit of capital, but pays 70Yo of the cost. Since 213 <.70, investment is discouraged 5. Raise the tax rate on Louise (who has
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This note was uploaded on 10/15/2011 for the course ECON 134 taught by Professor Coiner during the Spring '11 term at Brandeis.

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pubsec-anstoex3 - BRANDEISLINIVERSITY Department f...

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