Schmeezle and Schmoozle are two advisors for the government of Feldspar. Schmeezle says that since the elasticity of demand for granite countertops is –3 and the elasticity of demand for sinks is –1.5, taxes should be raised entirely from granite countertops. Schmoozle argues that it is better to levy taxes on both goods anyway. Which advisor should the Feldspar government listen to? Why?
Answer to relevant QuestionsWhat is the theoretical justification for a so-called Laffer curve? Based on the empirical evidence described in the text, should the U.S. raise or lower its tax rates in order to increase tax revenues? Explain. For which group of workers is the substitution effect associated with a tax increase more likely to outweigh the income effect: primary earners or secondary earners? Explain. Congressman Pinkie proposes reducing the tax exemption for children in married families where only one parent works outside the home. Why would this proposal improve equity, from a Haig-Simons perspective? Mallovia has two tax brackets. The first $20,000 in income is taxed at a 10% marginal rate, and income above $20,000 is taxed at a 30% marginal rate. All income—earned income and nominal interest, dividend, and ...In some cultures, when a member of the community who is ineligible for government provided social insurance faces some adverse condition, the rest of the community lends that member money until his or her condition improves. ...
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