曼昆我国经济学原理英文版文案加习题答案8章

Chapter 8 /Application: The Costs of Taxation ? 149

a. Economists who argue that labor taxes do not greatly distort market outcomes believe

that labor supply is fairly inelastic.

b. Economists who argue that labor taxes lead to large deadweight losses believe that labor

supply is more elastic. Type: In-class discussion Topics: Deadweight loss, taxation Materials needed: None Time: 10 minutes Class limitations: Works in any size class Purpose Most students have not spent a great deal of time considering the effects of taxation on labor supply. This in-class exercise gives them the opportunity to consider the effects of proposed tax rates on their own willingness to supply labor. Instructions Ask students to assume that they are full-time workers earning $10 per hour, $80 per day, $400 per week, $20,000 per year. Ask them if they would quit their jobs or keep working if the tax rate was 10%, 20%, 30%, … (up to 100%). Keep a tally as they show hands indicating that they are leaving the labor force. Ask students what they think the “best” tax rate is. Points for Discussion Many students have no idea that current marginal tax rates are greater than 30% for many taxpayers. Students will likely say that a tax rate of zero would be best, but remind them that there would be no roads, libraries, parks, or national defense without at least some revenue raised by the government. Activity 1—Labor Taxes III. Deadweight Loss and Tax Revenue as Taxes Vary Figure 6

A. As taxes increase, the deadweight loss from the tax increases.

B. In fact, as taxes increase, the deadweight loss rises more quickly than the size of the tax.

1. The deadweight loss is the area of a triangle and the area of a triangle depends on the

square of its size.

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150 ? Chapter 8 /Application: The Costs of Taxation

2. If we double the size of a tax, the base and height of the triangle both double so the area of

the triangle (the deadweight loss) rises by a factor of four. C. As the tax increases, the level of tax revenue will eventually fall.

D. Case Study: The Laffer Curve and Supply-Side Economics

1. The relationship between the size of a tax and the level of tax revenues is called a Laffer

curve. 2. Supply-side economists in the 1980s used the Laffer curve to support their belief that a drop

in tax rates could lead to an increase in tax revenue for the government.

3. Economists continue to debate Laffer’s argument.

a. Many believe that the 1980s refuted Laffer’s theory.

b. Others believe that the events of the 1980s tell a more favorable supply-side story.

c. Some economists believe that, while an overall cut in taxes normally decreases revenue,

some taxpayers may find themselves on the wrong side of the Laffer curve.

ALTERNATIVE CLASSROOM EXAMPLE: Draw a graph showing the demand and supply of paper clips. (Draw each curve as a 45-degree line so that buyers and sellers will share any tax equally.) Mark the equilibrium price as $0.50 (per box) and the equilibrium quantity as 1,000 boxes. Show students the areas of producer and consumer surplus.

Impose a $0.20 tax on each box. Assume that sellers are required to “pay” the tax to the government. Show students that:

? the price buyers pay will rise to $0.60. ? the price sellers receive will fall to $0.40.

? the quantity of paper clips purchased will fall (assume to 800 units). ? tax revenue would be equal to $160 ($0.20 ? 800).

Have students calculate the area of deadweight loss. (You may have to remind students how to calculate the area of a triangle.)

Show students that as the tax increases (to $0.40, $0.60, and $0.80), tax revenue rises and then falls, and the deadweight loss increases. E. In the News: The Tax Debate

1. Recently, policymakers have debated the effects of increasing the tax rate, particularly on

higher-income taxpayers.

2. These two opinion pieces from The Wall Street Journal present both sides of the issue.

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Chapter 8 /Application: The Costs of Taxation ? 151

Type: In-class assignment Topics: Taxes and deadweight loss Materials needed: None Time: 20 minutes Class limitations: Works in any size class Purpose The market impact of taxes can be a new concept to many students. This exercise helps them think about the effects of taxes on different goods. Taxes that may be appealing for equity reasons can be distortionary from a market perspective. Instructions Tell the class, “The state has decided to increase funding for public education. They are considering four alternative taxes to finance these expenditures. All four taxes would raise the same amount of revenue.” List these options on the board: 1. A sales tax on food. 2. A tax on families with school-age children. 3. A property tax on vacation homes. 4. A sales tax on jewelry. Ask the students to answer the following questions. Give them time to write an answer, and then discuss their answers before moving to the next question: A. Taxes change incentives. How might individuals change their behavior because of each of these taxes? B. Rank these taxes from smallest deadweight loss to largest deadweight loss. Explain. C. Is deadweight loss the only thing to consider when designing a tax system? Common Answers and Points for Discussion A. Taxes change incentives. How might individuals change their behavior because of each of these taxes? 1. A sales tax on food: At the margin, some consumers will purchase less food. Overall food purchases will not decrease substantially because the tax will be spread over a large number of consumers and demand is relatively inelastic. 2. A tax on families with school-age children: No families would put their children up for adoption to avoid taxes. A large tax could have implications for family planning; couples may choose not to have children, or to have fewer children, over time. A more realistic concern would be relocation to other states by mobile families to avoid the tax. 3. A property tax on vacation homes: This tax would be concentrated on fewer households. A large tax would discourage people from buying vacation homes. Developers would build fewer vacation homes in the long run. In many areas, people could choose an out-of-state vacation home to avoid the tax. 4. A sales tax on jewelry: This tax would also be relatively concentrated. People would buy less jewelry, or they would buy jewelry in other states with lower taxes. Activity 2—Tax Alternatives ? 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

152 ? Chapter 8 /Application: The Costs of Taxation

B. Rank these taxes from smallest deadweight loss to largest deadweight loss. Lowest deadweight loss—tax on children, very inelastic Then—tax on food. Demand is inelastic; supply is elastic. Third—tax on vacation homes Demand is elastic; short-run supply is inelastic. Most deadweight loss—tax on jewelryDemand is elastic; supply is elastic. Is deadweight loss the only thing to consider when designing a tax system? No. This can generate a lively discussion. There are a variety of equity or fairness concerns. The taxes on children and on food would be regressive. Each of the taxes would tax certain households at much higher rates than other households with similar incomes. C. SOLUTIONS TO TEXT PROBLEMS:

Quick Quizzes

1. Figure 1 shows the supply and demand curves for cookies, with equilibrium quantity Q1 and

equilibrium price P1. When the government imposes a tax on cookies, the price to buyers

rises to PB, the price received by sellers declines to PS, and the equilibrium quantity falls to Q2. The deadweight loss is the triangular area below the demand curve and above the supply curve between quantities Q1 and Q2. The deadweight loss shows the fall in total surplus that results from the tax.

Figure 1

2. The deadweight loss of a tax is greater the greater is the elasticity of demand. Therefore, a

tax on beer would have a larger deadweight loss than a tax on milk because the demand for beer is more elastic than the demand for milk.

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Chapter 8 /Application: The Costs of Taxation ? 153

3. If the government doubles the tax on gasoline, the revenue from the gasoline tax could rise

or fall depending on whether the size of the tax is on the upward or downward sloping

portion of the Laffer curve. However, if the government doubles the tax on gasoline, you can be sure that the deadweight loss of the tax rises because deadweight loss always rises as the tax rate rises.

Questions for Review

1. When the sale of a good is taxed, both consumer surplus and producer surplus decline. The

decline in consumer surplus and producer surplus exceeds the amount of government revenue that is raised, so society's total surplus declines. The tax distorts the incentives of both buyers and sellers, so resources are allocated inefficiently.

2. Figure 2 illustrates the deadweight loss and tax revenue from a tax on the sale of a good.

Without a tax, the equilibrium quantity would be Q1, the equilibrium price would be P1, consumer surplus would be A + B + C, and producer surplus would be D + E + F. The imposition of a tax places a wedge between the price buyers pay, PB, and the price sellers receive, PS, where PB = PS + tax. The quantity sold declines to Q2. Now consumer surplus is A, producer surplus is F, and government revenue is B + D. The deadweight loss of the tax is C+E, because that area is lost due to the decline in quantity from Q1 to Q2.

Figure 2

3. The greater the elasticities of demand and supply, the greater the deadweight loss of a tax.

Because elasticity measures the responsiveness of buyers and sellers to a change in price, higher elasticity means the tax induces a greater reduction in quantity, and therefore, a greater distortion to the market. 4. Experts disagree about whether labor taxes have small or large deadweight losses because

they have different views about the elasticity of labor supply. Some believe that labor supply is inelastic, so a tax on labor has a small deadweight loss. But others think that workers can adjust their hours worked in various ways, so labor supply is elastic, and thus a tax on labor has a large deadweight loss.

? 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.