Section 9

Question 1

Why do we have deadweight loss

Answer 1

Due to the fact people respond to incentives

• some buyers will no longer by the project due to price increase
• some sellers will be at the market because it is no longer beneficial
• no tax revenue will occur for these instances

Question 2

What determines the size of deadweight loss

Answer 2

Price elasticity of demand or supply

Elastic responds Substantially to a change in price which would mean a larger deadweight loss due to incentives to change their behavior

Question 3

What does in inelastic demand or supply mean for dead weight loss

Answer 3

That the responsible only be a slight change due to the price increase there for a smaller deadweight loss

Question 4

How do you evaluate a tax policy

Answer 4

using two objectives

1. Equity
2. Efficiency

Question 5

What is the primary aim for a tax policy

Answer 5

Raise revenue for the government dummy

Question 6

What are the costs of taxes to taxpayers

Answer 6

1. The tax came in itself

Two other costs

1. Deadweight losses
2. Administrative burden

Question 7

How are dead weight losses a cost to taxpayers

Answer 7

It distorts decisions people make

• reduces economic well-being
• in efficiency
• people work less
• The deadweight loss comes from the person who doesn’t pay the tax

Question 8

What is the administrative burden

Answer 8

• The text care Bears this as they comply with tax laws
• it’s a type of deadweight loss
• created by filling out forms, recordkeeping etc.

Question 9

How is it administrative burden a deadweight loss

Answer 9

Because only the government receives taxes paid that’s why there is a loss on this because people spend to adhere to rules

Question 10

With an efficient text system what kind deadweight loss would you have and administrative burden

Answer 10

You would have a small deadweight loss and a small administrative burden

Question 11

What is the consumption tax

Answer 11

Tax on what people spend their money on rather then the amount they earned

Question 12

What is good about a consumption tax

Answer 12

Encourages people to Save

Question 13

What are the consumption taxes

Answer 13

GST

And PST

Question 14

What is the formula for income with regards to a consumption tax

Answer 14

Income = consumption plus savings

Question 15

What is the formula for individual consumption with regards to consumption tax

Answer 15

Individuals consumption

Consumption = income minus savings

Question 16

RRSPs function like what

Answer 16

A consumption tax

Question 17

What is the formula for the average tax rate

Answer 17

Total taxes paid / total income

Question 18

What is the marginal tax rate

Answer 18

Extra taxes paid on additional dollar of income

Question 19

What does marginal tax measure

Answer 19

It measures how much a tax system discourages people from working

Question 20

What causes the deadweight loss of income tax

Answer 20

The marginal tax

Question 21

Which form of taxes most efficient

Answer 21

Lump sum tax

Everyone knows how much they will pay

Therefore there’s a minimal administrative burden

Question 22

What is text incidence

Answer 22

Study of who bears the burden of taxes

Question 23

What is tax incidence important for

Answer 23

Evaluating equity

The person who bears the burden is not always the person he gets the tax bill

Taxes alter the supply and demand equilibrium prices

Therefore you must consider this when evaluating horizontal and vertical equity

Question 24

What is the flapper theory

Answer 24

The burden of attacks like a fly on the flapper stick wherever it first lands

This assumption is rarely valid

Question 25

What are some important points about corporate income tax

Answer 25

1. It’s popular among voters because they are not people

2. They would rather have their taxes reduced and the corporations pay mor

Question 26

Who bears the burden of the tax when corporate income tax is increased

Answer 26

It’s a difficult question among economist however

- people pay all the taxes
owners, customers, workers of the corporation

Question 27

What is laisser faire

Answer 27

Meaning allow them to do or leave it alone

• The markets will maximize total sir plus usually without social planner affecting it