Ask Question, Ask an Expert


Ask Microeconomics Expert

1. According to estimates by Goolsbee and Petrin (2004), the elasticity of demand for basic cable service is -0.51, and the elasticity of demand for direct broadcast satellites is -7.40. Suppose that a community wants to raise a given amount of revenue by taxing cable service and the use of direct broadcasting satellites. If the community’s goal is to raise the money as efficiently as possible, what should be the ratio of the cable tax to the satellite tax? Discuss briefly the assumptions behind your calculation.

2. Assume the Working Income Tax Benefit tops up a single individual’s income by 25 percent of the amount that employment earnings exceed $3000, up to a maximum payment of $950. Assume the refundable credit is reduced by 15 percent on the amount of earnings in excess of $10,500.

a. Then over what range of earnings is the credit at its maximum value?

b. At what income is the credit reduced to zero?

c. Let statutory income tax be a flat rate of 30 percent, with a basic personal exemption of $10,000. Ignore all other taxes and program benefits in economy. Compute and describe effective marginal tax rate (EMTR) faced by this individual on income ranging from zero to $20,000.

d. Discuss incentive effects associated with this EMTR schedule, concerning the decision to join workforce and to increase hours worked, say, from part-time to full-time.

3. Jack and Jill live alone on an island. Their labour supply schedules are identical and given by L=(1-t)w, where t is income tax rate and w denotes wage. Jill’s wage is 6 and Jack’s is 2. Tax paid by an individual is twL and each receives a transfer equal to half the total revenues. Jack and Jill have identical utility functions given by U = C - (1/2)L2, where C denotes consumption (the individual’s income after tax and transfer). If social welfare function is W = 3Ujack = UJill, what is optimal tax rate? [Hint: prepare W as a function of the tax rate t.] Why is optimal tax rate not 0? Why is it not 1?

4. Nancy is endowed with $1000 of income in period 0 and $315 in period 1. The market interest rate is 5 percent. Her preferences between consumption in future (C1 in period 1) and consumption in present (C0 in period 0) are characterized by utility function  U(C1 ,C0) = C0 C1 , that has the marginal rate of substitution given by MRSC0C1 |ΔC1/ΔC0|= C1/C0

a. In the absence of taxation, how much money does she save or borrow?

b. Now assume the government (that ran on a political campaign slogan of “live in the present”) introduces a tax on interest income equal to 75 percent. Furthermore, any interest payments on borrowed money are not tax deductible. Draw after-tax budget constraint. Label the intercepts and the slope.

c. Determine the after-tax level of saving or borrowing.

d. Identify excess burden and the tax revenue raised on your diagram and determine their corresponding numerical values.

5. Jenna’s boss has decided to pay her a one-time bonus of $5,000. She decides to save money till she retires, 4 years from now. She contemplates two savings options. Option A is to save money for four years outside of an RRSP in a foreign corporate bond that would pay her 10 percent per year. Option B is to save for four years in an RRSP account with the domestic government bond that would pay her 8 percent per year. Marginal income tax rate which Jenna faces while she is working is 30 percent. When she retires her marginal tax rate would drop to 25 percent, since she would be in a lower tax bracket. As her financial advisor, which option do you recommend? (Answer this by computing the net amount of her bonus upon cashing in the investment at her retirement.)

6. ABC corporation is contemplating purchasing a new computer system which will yield a before-tax return of 30 percent. System depreciates at 10 percent a year. The after-tax interest rate is 8 percent, the corporation tax rate is 35 percent, and depreciation allowances follow the straight-line method over five years. There is no investment tax credit. Do you expect ABC to buy new computer system? Describe your answer.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91963

Have any Question? 

Related Questions in Microeconomics

Introduction to economic evaluation of health promotion

Introduction to Economic Evaluation of Health Promotion Interventions Assignment Evaluating Cost-effectiveness using Markov cohort models: The HPV case The goal of this assignment is to provide students with applied prac ...

Problem -the table below gives the income of each of four

Problem - The Table below gives the income of each of four individuals who are in a region. Calculate and plot the Lorenz curve and calculate the Gini coefficient for this economy. individual income 1 100 2 200 3 300 4 4 ...

Economic choice and economic decision makingconsider your

ECONOMIC CHOICE AND ECONOMIC DECISION MAKING Consider your last vehicle purchase and the decision making process you engaged in while deciding what vehicle to purchase or if a new vehicle was the right decision. While an ...

Question 1which of the following levels of supply chain

Question 1 Which of the following levels of supply chain information systems is most likely to provide the firm with a competitive advantage? A.Strategic planning B.Decision analysis C.Management control D.Transaction sy ...

Assignmentyou are the director of safety and health at

Assignment You are the Director of Safety and Health at Rotorcraft America, a mid-sized company that designs, manufactures and sells helicopters. Your organization has manufacturing operations in San Francisco, Californi ...

Assignment money and pricethe organizations strategic plan

Assignment: Money and Price The organization's strategic plan you wrote about calls for an aggressive growth plan, requiring investment in facilities and equipment, growth in productivity, and labor over the next five ye ...

Question 1the document that lists and details the contents

Question 1 The document that lists and details the contents and conditions of a shipment is called: A. The Tariff B. Proof of Delivery C. The Invoice D. The Bill of Lading Question 2 Declining transport rates as the quan ...

Assignmentwrite a 5-6 page paper on one of the following

Assignment Write a 5-6 page paper on ONE of the following topics. Advice: Read the question you choose very carefully, and make sure you are answering it. What you write must be clearly relevant to answering the question ...

Assignment discussion-applying balanced scorecardin many

Assignment: Discussion-Applying Balanced Scorecard In many cases, managers end up in trouble as they direct their focus exclusively on cost savings. Cost cutting is always emphasized, but other impacts, such as decreased ...

Essay questionyour manager knows that you have completed a

Essay Question Your manager knows that you have completed a course in Purchasing and Materials Management. Your manager would like you to write an essay for your fellow workers about the key purchasing/ supply management ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro