Problem 1
Consider each of the following tax policies. Decide for each whether the primary public policy goal is most likely raising revenue or changing behavior (with or without a market failure). [LO 20.1] a. Income tax. b. Cigarette tax.
Problem 3
Suppose the government wants to levy a new excise tax. For each of the following goods, determine whether you would expect an excise tax to result in high or low deadweight loss. [LO 20.2] a. Alcohol. b. Milk. c. Diamonds. d. Tropical vacations. e. Socks.
Problem 6
In each of the following examples, determine whether the price effect or the quantity effect dominates when the tax is applied. [LO 20.3] a. The government raises taxes on the 10 million iPods sold each year from \(\$ 10\) per iPod to \(\$ 20\) per iPod. The new equilibrium quantity is 9 million iPods. b. In response to concerns about chewing gum in schools, the government raises the tax on packs of gum from 20 cents per pack to 30 cents per pack. Before the tax increase, 50 million packs were sold each year. After the tax increase, 40 million packs are sold each year. c. Worried that Americans are addicted to coffee, the government raises the 5 -cent tax on a cup of coffee to 10 cents. Before the tax increase, 10 billion cups were sold each year. Afterward, 5 billion cups are sold each year.
Problem 7
Determine whether each of the following taxes is proportional, regressive, or progressive. [LO 20.4] a. An income tax of 25 percent on income from all sources. b. An income tax with three brackets and corresponding marginal tax rates: 10 percent for income up to \(\$ 50,000 ; 20\) percent for income up to \(\$ 100,000\); and 30 percent for income over \(\$ 100,000\). c. A fee of \(\$ 500\) per year for municipal services, charged to everyone who lives within the city limits. d. A capital gains tax that charges a flat rate of 40 percent, but only on capital gains over \(\$ 1\) million. e. A payroll tax of 10 percent on income under \(\$ 200,000\)
