Progressive 13 which of the following

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Unformatted text preview: worth 5 points Respond to each of the following statements by labeling the statement “true,” “false,” or “uncertain.” Then carefully justify your claim. Answers that do not provide sufficient justification will receive zero points. 1) One advantage of a consumption tax over an income tax is that a consumption tax (as implemented in the real world) does not distort the labour supply decision of workers. 2) So long as total social benefits exceed total social costs in a market, the allocation is efficient. 3) Healthcare is a public good. Page 7 Econ 325 CRN: 14794 Section A01 4) In order to have a progressive tax system, marginal income tax rates must be higher for the rich than for the poor. End Section 2 Section 3: Short answers 1) (8 points) Using a clear, well- labeled supply- demand diagram (i.e. in a partial equilibrium framework), show how a tax on land affects consumer price, producer price, and deadweight loss in the market for land. Assume the supply curve for land is vertical and that the demand curve is downward sloping. Page 8 Econ 325 CRN: 14794 Section A01 2) (6 points) Explain, using a diagram, how a consumption tax that also taxes consumption of leisure creates no deadweight loss. Why does this amount to a proportional lump- sum tax? 3) (6 points) Using the consumer choice model, illustrate the equivalent variation and the deadweight loss associated with a wage tax. Page 9 Econ 325 CRN: 14794 Section A01 4) 15 points total Assume the market for farmed oysters is perfectly competitive. The MC curve for the industry is given by MC=Q/200. Assume that the demand for farmed oysters is Q=500- 50P. a) 3 points What is the equilibrium quantity of oysters produced by the oyster farmers? Show your work for credit b) 3 points Suppose there is a marginal external cost of $2 per oyster due to pollution from the oyster farm. What is the efficient level of oyster production? Show your work for credit. Page 10 Econ 325 CRN: 14794 Section A01 c) 3 points Suppose the government imposes the optimal tax or...
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This document was uploaded on 09/17/2013.

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