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In the given figure, the initial equilibrium is achieved at price of $7 and quantity of 7 units.
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- The following graph shows the daily market for jeans when the tax on sellers is set at $0 per pair. Suppose the government institutes a tax of $40.60 per pair, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then, enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Market for Jeans 200 I Quantity (Pairs of jeans) 180 100 Supply 160 Demand Price (Dollars per pair) Supply Price (Dollars per pair) 132.00 0.00 140 120 Supply Shifter 100 Demand Tax on Sellers (Dollars per…12. In Taxland, the first $10,000 earned per year is exempt from taxation. Between $10,000.01 and $30,000, the tax rate is 25 percent. Between $30,000.01 and $50,000, it's 30 percent. Above $50,000, it's 35 percent. You're earning $80,000 a year. (LO18-4) a. How much in taxes will you have to pay? b. What is your average tax rate? c. What is your marginal tax rate?Notice that the before-tax equilibrium price was 25. Compared to the price, in the after-tax equilibrium, how much more would consumers need to pay to buy one X? This is the consumers’ tax incidence. Also, in the after-tax equilibrium, how much less would sellers receive from each X they sell? This is the sellers’ tax incidence. (note: this question asks changes in the prices from before-tax equilibrium price 25) Consumers’ tax incidence: Sellers’ tax incidence:
- Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, all citizens must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn. Given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be rate for his entire income will be and his average tax O 10 percent; 50 percent O 50 percent; less than 50 percent O 10 percent; less than 50 percent O 50 percent; 50 percent1QUESTION 10 Using the attached table, once the tax is implemented, the tax revenue will be be Quantity MB 520 525 530 535 540 545 550 164 160 156 152 148 144 140 136 MC 80 90 100 110 120 130 140 555 150 Note: MB designates the marginal benefit and reflects the values on the demand curve. MC is the marginal cost and designates the values on the supply curve. O $18,375, $1,750 $70, $35 O $36,750, $875 O $525, $1,750 MB-Tax (Amount producer receives) 94 90 86 and the deadweight loss will 82 78 74 70 66
- Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government enacted a marginal tax of 10 percent on all labor market earnings above $20,000 and transferred this money to households earning $20,000 or less, would the incomes of the poor rise by $8,000 per year? O A. No. Workers in rich and poor households would work less because of the marginal tax. O B. Yes. 10% of $80,000 is $8,000; therefore, $8,000 from each rich household would be transferred to each poor household. O C. There is not enough information to determine household behavior in this case. O D. No. Only workers in rich households would work less because of the marginal tax.Consider the effects of two taxes: lump-sum tax and a price distorting tax. Consider a consumer. Let the price of good X be Px, and the price of good Y be Py = 1. In the figure below. The budget line Lo of the consumer is the before-tax budget line. In the figure below, A, B, C, D, and E are some unknown numbers. E D L2 Uo U2 Lo A 1. Using A, B, C, D, and E, answer the value of the income of the consumer.P P=7 On the following diagram if there is a tax of $3 dollars imposed on sellers, what is the tax burden on sellers? $1 O $2 $3 $7
- Suppose that the U.S. government decides to charge wine consumers a tax. Before the tax, 35 billion bottles of wine were sold every year at a price of $5 per bottle. After the tax, 28 billion bottles of wine are sold every year; consumers pay $6 per bottle (including the tax), and producers receive $3 per bottle. The amount of the tax on a bottle of wine is S burden that falls on producers is S |per bottle. Of this amount, the burden that falls on consumers is S per bottle, and the per bottle. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on producers. True O False. Consider a government that raises money in a two-good economy by taxing good 1 at a rate of t per unit. The government is considering replacing these taxes with a lump-sum tax to the consumer that raises the same revenue. Thus, if the consumer consumes x units of good 1 before the change in taxes, she must pay the government a lump sum of tx after the change. Suppose, moreover, that prices change only by the amount of the tax; i.e., if prices are (p₁ + t, p2) before the change, then they become (P₁, P2) after. Let x = (x1, x2) be the consumer's demand before the change, and x' (x1, x2) the consumer's demand after. Suppose that x = x'. = (a) Is one of x or x' revealed preferred to the other (and if so, which)? Solution: The budget constraint before the change is (p₁+t)ã₁+p2ã2 ≤w and after the change is p₁₁ +p2x2 ≤ w − tx₁. Since x = (x1, x2) satisfies the first budget constraint, it must also satisfy the second one. Hence x is affordable after the change when x' is chosen. Therefore,…
