Explain why it is more difficult to determine the incidence of the corporate income tax than it is to determine the incidence of the tax on gasoline
What will be an ideal response?
You can determine the incidence of the gasoline tax if you know the elasticity of demand and the elasticity of supply of gasoline. If the demand for gasoline is less elastic than the supply, consumers will pay the majority of the tax. If the supply is less elastic than the demand, firms will pay the majority of the tax. Firms pass on some of the burden of the corporate income tax to consumers in the form of higher prices, but there is general agreement among economists that the tax also reduces the rate of return on investment in corporations. If a firm invests less with the tax than it would without the tax, it will have a negative effect on productivity. This can result in lower wages for workers. All of these factors make it difficult to determine the impact of the corporate income tax on any one of the affected groups. A study by the Congressional Budget Office suggests that the total burden of the tax is significant, equal to as much as one-half of the revenue the tax raises.
You might also like to view...
Tariffs ________ prices for domestic consumers and import quotas ________ prices for domestic consumers
A) lower; raise B) raise; also raise C) raise; lower D) lower; also lower
Price controls:
A. are regulations that sets a maximum or minimum legal price for a particular good. B. allow a market to reach equilibrium. C. prevent a good from being bought or sold. D. All of these are true.
The demand curve facing a firm
a. indicates the amount of raw materials and other inputs the firm will purchase, at various prices b. indicates the amount of the good demanded from that firm by a particular consumer, at various prices c. indicates the amount of output that customers will purchase from the firm, at various prices d. shows the minimum price at which the firm can sell any given quantity of output e. is horizontal in the long run, but upward sloping in the short run
If a company has significant economies of scale in the long run-assuming a large market -the company will tend to
A. grow larger and have a rising average cost curve. B. become smaller and have a rising average cost curve. C. become smaller and have a declining average cost curve. D. grow larger and have a declining average cost curve.