Why is it the case that taxes in one market can have impacts on supply and demand in others and should policy makers take this into account when setting taxes?
What will be an ideal response?
When goods are complements or substitutes, changes in the price can impact demand for
other goods. Policy makers should care about the overall impacts to the economy from certain
tax policies. This will be discussed in greater detail in later chapters.
You might also like to view...
Which of the following situation would make transaction costs too high to negotiate and therefore the Coase Theorem would not apply?
A. Only a few people are bothered by the pollution in the area B. Many people are bothered by pollution in the area C. Many firms are in the area with different levels of pollution D. One firm is the cause of the pollution
For a household, the opportunity cost of not working is the
A) price level. B) nominal wage rate. C) demand for labor. D) cost of living. E) real wage rate.
When a nation prints money (rather than taxing directly) to finance its government spending, it results in inflation, and purchasing power of the private sector falls. This is known as:
A) benchmarking. B) indirect taxation. C) seigniorage. D) creeping inflation.
Electric utilities sometimes charge higher prices for electricity used for illumination and lower prices for electricity used for heat. These lower prices for electric heat result primarily from:
A. economies of scale in electric heat generation. B. the existence of good heating substitutes. C. prices for electric heat being set at the socially optimal level. D. strict government regulation of the price charged for electric heat.