Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $4 tax per unit?
The deadweight loss will be $800 because the deadweight loss rises by the square of the tax increase. Thus, if the tax doubles, the deadweight loss quadruples.
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Show graphically and explain why targeting an interest rate is preferable when money demand is unstable and the IS curve is stable
What will be an ideal response?
A tax on the buyers of cameras encourages
a. sellers to supply a smaller quantity at every price. b. buyers to demand a smaller quantity at every price. c. sellers to supply a larger quantity at every price. d. Both a) and b) are correct.
Edgar Browning and William Johnson, in a paper published in the Journal of Political Economy (1984), presented evidence that a one-dollar transfer to the bottom 40 percent of income distribution costs the top 60 percent nine dollars. If correct, this finding proves
A. the tax system is generating significant excess burdens. B. these transfers are not worth the cost. C. loopholes have to be closed. D. the burden of the tax system is too great.
Firms in a given industry are affected by the tariff imposed on the product they sell, but not by the tariffs imposed on their purchased inputs.
Answer the following statement true (T) or false (F)