TAILIEUCHUNG - Ten Principles of Economics - Part 18

Ten Principles of Economics - Part 18. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | 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 hollowtipped 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. 9. Suppose the government currently raises 100 million through a tax on widgets and another 100 million through a tax on gadgets. If the government doubled the tax rate on widgets and eliminated the tax on gadgets would it raise more money than today less money or the same amount of money Explain. 10. Most states tax the purchase of new cars. Suppose that New Jersey currently requires car dealers to pay the state 100 for each car sold and plans to increase the tax to 150 per car next year. a. Illustrate the effect of this tax increase on the quantity of cars sold in New Jersey the price paid by consumers and the price received by producers. b. Create a table that shows the levels of consumer surplus producer surplus government revenue and total surplus both before and after the tax increase. c. What is the change in government revenue Is it positive or negative d. What is the change in deadweight loss Is it positive or negative e. Give one reason why the demand for

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