1. Explain in words and in diagrams how a tax on high-skilled labor burdens low- skilled workers.
2. Which of the following taxes do you think would cause the larger excess burden? In one or two sentences explain why?
a. An excise tax on blueberries or a sales tax on all goods and services.
b. A tax on income or a tax on all goods and services.
c. A tax on your age or a tax on income.
d. A tax on your weight or a tax on your age
3. The government imposes an excise tax on the sale of all toothbrushes. Before the tax, 2 million toothbrushes were sold every year at a price of $1.50. After the tax is imposed, 2 million toothbrushes are sold every year; consumers pay $2 per toothbrush, $1.50 of which producers receive. Assume demand and supply is linear.
a. How much revenue is raised by the tax?
b. Find the ratio of efficiency loss to tax revenue.
4. The demand for widgets is P = 100 -3Q and the supply of widgets is P = 20 + 2Q.
a. Who bears the economic incidence of a $5 per unit tax on widgets?
b. How much revenue does the tax raise for the government.
c. Find the excess burden of the tax.