a) John has three options for investing his money (let's assume he doesn't worry about risk): a) put it into the stock market and earn a net income after taxes of $600; b) save the money in a savings account and earn a net income after taxes of $40; or c) buy government bonds and earn a net income after taxes of $320. The opportunity cost of buying stocks is 600 320 40 280 360 b) There are 100 identical people in the market. Each person has a demand function of D: P = 100 - Q The market price is $10. The total market quantity demanded is therefore 90 10 10000 9000 c) When assessing the welfare effects of taxes, we can conclude that O They are always welfare decreasing O They are always welfare increasing, because they allow the government to provide essential goods O They are usually welfare decreasing in the market in which they are raised, but for society as a whole it depends on how they are used O They are welfare neutral, because whatever is lost by producers and consumers goes instead to the government and therefore is just a reallocation of money
a) John has three options for investing his money (let's assume he doesn't worry about risk): a) put it into the stock market and earn a net income after taxes of $600; b) save the money in a savings account and earn a net income after taxes of $40; or c) buy government bonds and earn a net income after taxes of $320. The
600
320
40
280
360
b)
There are 100 identical people in the market. Each person has a
90
10
10000
9000
c)
When assessing the welfare effects of taxes, we can conclude that
O They are always welfare decreasing
O They are always welfare increasing, because they allow the government to provide essential goods
O They are usually welfare decreasing in the market in which they are raised, but for society as a whole it depends on how they are used
O They are welfare neutral, because whatever is lost by producers and consumers goes instead to the government and therefore is just a reallocation of money
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