9. Use labor supply and demand curves to analyze the effect of an excise tax (pr
ID: 1141569 • Letter: 9
Question
9. Use labor supply and demand curves to analyze the effect of an excise tax (proportional tax) orn labor income. Show the effects of the tax on employees and employers, and note any deadweight losses that exist. Show that reducing this tax affects the magnitude of the tax burden, tax revenue, and deadweight loss. What tax rate maximizes tax revenue in your diagram? How is this income tax revenue maximizing tax affected by the price sensitivities (elasticities) of particular demand and Are their any important differences between your diagrams and ones that you would use to a. b. c. d. supply curves for labor? e. alyze a proportional or tax on labor income? an ssive 10. It is sometimes claimed that firms and their employees "share" the social security tax, because by law half of the money is paid from employee salaries and the other half is paid by the firm. a. Use the tools developed in class to analyze this claim about the tax burden of the social security tax. b. Show that the slopes of the demand and supply curves in various labor markets affect how the tax is distributed among suppliers (employees) and demanders (employers) of labor. c. Is there any case in which the distribution of the tax burden of social security is s hared equally? d. Show how this tax may have different effects on labor markets in the short and long run. e. The social security tax has a flat marginal tax rate on labor income up to approximately 127K/year. Is this tax progressive, proportional, or regressive? Explain. The "Obama care" health care system can be thought of as a subsidy for healthcare for "lower middle class" citizens of the US. Use a supply and demand curve for health care to show the effects on prices for persons eligible for the plan. (i) What happens to prices for other persons who are not eligible for the plan? Explain. 11. 12. Many proposed "green energy programs" can be thought of as subsidies for particular methods of producing electricity, as with programs that support windmills, solar panels, gasahol, biomass, and battery powered cars. In the space below draw two diagrams. In the first diagram (a) show the case in which the entire value of the subsidy accrues to owners of windmills. On the second diagram (b) show the case in which the entire value of the subsidy accrues to purchasers of windmills. Label l important details including the cost of the subsidy public economics, study guide 1, page 3 13. The green energy programs mentioned in problem 12 may or may not be Pigovian s ubsidies according to their levels. Assume that alternative energy production produces a positive externality (positive external marginal benefit). lustrate three cases: () subsidies that are below Pigovian levels, (ii) subsidies that are at Pigovian levels, and subsidies that exceed Pigovian levels. Note both their output effects, effects on social net benefits, and associated dead weight losses (if any). 14. Pigovian taxes are said to have no deadweight losses. () Draw an illustrating example and demonstrate that there are no deadweight losses from a Pigovian tax, because social net benefits are increased rather than reduced by such taxes (assuming that the tax revenues are not wasted) (i) Show that a tax on an externality generating activity that is too high (above Pigovian levels) will have a dead weight loss.Explanation / Answer
Marginal analysis involves a cost-versus-benefits comparison of various business activities. In marginal analysis, the cost of an activity is measured against incremental changes in volume to determine how the overall change in cost will affect the bottom line of a business. Marginal analysis can show the cost of additional production by a business all the way up to the break-even point. This is generally the maximum cost that a business can sustain without losing money.
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