The Laffer curve y = R(t) proposes a simple theoretical relationship between a government's tax revenue...
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The Laffer curve y = R(t) proposes a simple theoretical relationship between a government's tax revenue R(t) and tax rate t: R(t) = tb(t), where b(t) is the tax base for tax rate t- that is, the total dollar amount of economic activity taxable at tax rate t. The dependence of b(t) on t comes from things like changes in people's spending habits or companies' investment plans based on the tax rate. Because t represents a tax rate, it is restricted to be in the interval [0,1]. (For example, if you have a tax base of $20 billion and a tax rate of 1, $5 billion goes to the government through taxes, and $15 billion remains with the economic actors.) In this assignment, you may use without proof the assumption that b(t) is continuous on the interval [0,1] and differentiable on the interval (0,1). You may also look up terms and arguments online, though it is certainly possible to get full marks on the assignment without doing so. 2. (a) In a paragraph, explain why it is plausible that b'(t) < 0 on the interval (0,1). Your answer to 2(a) should go here. (b) Which scenario do you think is more plausible: that b"(t) < 0 on the interval (0,1), or that b"(t) > 0 on the interval (0, 1)? Justify your answer in one or two paragraphs. You may assume that b'(t) <0 on the interval. Your answer to 2(b) should go here. In the remainder of this assignment, you may assume that b'(t) <0 and b" (t) < 0 on the interval (0, 1). 3. (a) Find R(0). Your answer to 3(a) should go here. (b) In a paragraph, explain why it is plausible that R(1) = 0. Your answer to 2(b) should go here. (c) Determine the concavity of R(t). Your answer to 3 should go here. The Laffer curve y = R(t) proposes a simple theoretical relationship between a government's tax revenue R(t) and tax rate t: R(t) = tb(t), where b(t) is the tax base for tax rate t- that is, the total dollar amount of economic activity taxable at tax rate t. The dependence of b(t) on t comes from things like changes in people's spending habits or companies' investment plans based on the tax rate. Because t represents a tax rate, it is restricted to be in the interval [0,1]. (For example, if you have a tax base of $20 billion and a tax rate of 1, $5 billion goes to the government through taxes, and $15 billion remains with the economic actors.) In this assignment, you may use without proof the assumption that b(t) is continuous on the interval [0,1] and differentiable on the interval (0,1). You may also look up terms and arguments online, though it is certainly possible to get full marks on the assignment without doing so. 2. (a) In a paragraph, explain why it is plausible that b'(t) < 0 on the interval (0,1). Your answer to 2(a) should go here. (b) Which scenario do you think is more plausible: that b"(t) < 0 on the interval (0,1), or that b"(t) > 0 on the interval (0, 1)? Justify your answer in one or two paragraphs. You may assume that b'(t) <0 on the interval. Your answer to 2(b) should go here. In the remainder of this assignment, you may assume that b'(t) <0 and b" (t) < 0 on the interval (0, 1). 3. (a) Find R(0). Your answer to 3(a) should go here. (b) In a paragraph, explain why it is plausible that R(1) = 0. Your answer to 2(b) should go here. (c) Determine the concavity of R(t). Your answer to 3 should go here.
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Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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