Why would a reduction in tax rates that was anticipated to be only temporary not cause nearly as large a supply-side response as one that was expected to be permanent? Does the same logic hold for how long other parts of the existing ground rules (e.g., regulations) will remain as they are now?

Why would a reduction in tax rates that was anticipated to be only temporary not cause nearly as large a supply-side response as one that was expected to be permanent? Does the same logic hold for how long other parts of the existing ground rules (e.g., regulations) will remain as they are now?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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It's a specialized market, so we'll just have to assume we have enough buyers and sellers to have our demand and supply curves be straight, smooth lines. The following information applies to the market before any tax is applied: Vertical intercept, demand curve: 600Vertical intercept, supply curve: 100P* = $300Q* = 50 Later, a tax is put on the market. The per-unit tax is $100, and it makes the price received by sellers fall to $260. With the tax, only 40 units are sold. (These numbers are not very realistic - but just go with it.) Carefully following all numeric instructions, calculate the price paid by buyers. Calculate market total surplus AFTER the tax is applied. Calculate producer surplus BEFORE the tax is applied. Calculate total market surplus BEFORE the tax is applied. Calculate DWL after the tax is applied.
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