1. Answer the question on value added tax (VAT) and (2) explain how VAT is different and similar to retail sales tax as well as their advantages and disadvantages as a source of revenue.
   • The text worked the logic of a VAT through a production-distribution process from a farmer to the final customer. Work the same process through with a 10 percent turnover or gross receipts tax. Assume that value added at each stage is the same as before, but that no credit for prior tax paid is provided and that each sales price equals tax-inclusive cost of purchases, plus value added at that stage, plus the 10 percent tax. Compute the final price paid by the consumer and the effective tax rate as a percentage of total value added. Make the same computation, assuming the sweater manufacturer and the retailer merge (i.e., there is no taxable sale in this exchange).

Refer to the examples on VAT in the lecture notes on tax policy as well as Mikesell, p.502-504