Chapter 6: Q 6.4 (page 124)
Explain how the taxes government levy on purchases of goods and services affect market prices and equilibrium quantities.
The taxes levied by the government will greatly affect the market prices and equilibrium quantities.
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Between 2017 and 2018, a small businessperson's income increased from \(200,000 to \)220,000. The annual state income taxes that she paid increased from \(5000 to \)5500. What was her average state income tax rate in each year?
Distinguish between average tax rates and marginal tax rates.
How could the legal expenses incurred in establishing rights to assess remote sales and the costs that states incur in collecting such taxes cut further into dynamic analysis estimates of the net revenue gains to states from implementing the taxes ?
Consider Figure 6-3. Suppose that the government raises its sales tax from 4 percent to 6 percent. Does the direction of the effect on government's tax revenue indicated by the figure's dynamic tax analysis accord with the prediction that would have been forthcoming from static tax analysis? Explain briefly.
Why might pressures to satisfy government budget constraints give state governments incentives to seek to tax remote sales even if they were to determine that actual net revenues collected likely would be less than originally estimated?
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