Jack and Jill are the only two residents in a neighborhood, and they would like
ID: 2440406 • Letter: J
Question
Jack and Jill are the only two residents in a neighborhood, and they would like to hire a security guard. The value of a security guard is $200 per month to Jack and $150 per month to Jill. Irrespective of who pays the guard, the guard will protect the entire neighborhood and charge $120 per month for the service. Suppose Jack earns $8,500 per month and Jill earns $3,500 per month.
a. With a proportional tax of 1 percent on income, how much would Jack and Jill pay, and would it be enough to pay for the security guard?
Jack would pay $.
Jill would pay $.
This tax (Click to select)would not or would be enough to pay for the security guard.
b. Suppose instead that Jack proposes a payment scheme under which Jack and Jill would each receive the same net benefit from hiring the guard. How much would Jack and Jill pay now?
Jack would pay $.
Jill would pay $.
Would both Jack and Jill vote for this scheme?
(Click to select)No. Jill will not vote for it or Yes. Both will vote for it or No. Jack will not vote for it.
Explanation / Answer
Answer:
a. With a proportional tax of 1 percent on income
jack would pay $ 85 (1% of $8,500)
jill would pay $35 (1% of $3,500)
this tax would be enough to pay for the security guard as both are paying total $120 ($85 + $35) to the guard and it is the charge for service of the guard.
b. Suppose instead that Jack proposes a payment scheme under which Jack and Jill would each receive the same net benefit from hiring the guard. Then
Jack would pay $80
(as value of security guard is $200 for jack and guard charges $120 so we will subtract the cost charged by guard to the cost of jack: $200 - $120 = $80)
Jill would pay $30 ($150-$120 = $30)
Yes both jack and jill will vote for this scheme as they have to pay less than the proportion tax scheme.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.