Question

Need help with these questions 3-6

price cenng or producers ? 3. T/F/Explain - The current price for your favorite candy is $3. Government imposes a sales tax on this product of $0.50. The new $3.50 4. In the graph below, what is the customer's burden of the $0.50 tax on equilibrium price will be candy? What is the firm's burden? Price $3.40 $3.00 $2.90 Quantity 5. What is the difference between a progressive income tax and a flat tax? Which one taxes wealthier citizens more? 6. In what way do taxes and transfers influence income inequality? What tools do we use to measure the inequality remaining?

Answer 1

3)

This is False statement:

Whole burden could be possible on buyer only if demand is perfectly inelastic. But since here demand is not perfectly inelastic, thus, burden of tax would be shared between buyer and seller.

4)

Tax would be shared between buyer and seller.

Buyer share of burden : 3.40 - 3

= 0.40

Burden on seller: 0.10

5)

Progressive income tax: Income tax rate rises when income of individual rises. Higher income would be taxed at higher rate relative to lower income. Thus, it is pro poor and anti- wealthy class.

Flat tax: Single tax rate is imposed on all. Thus, it hurts poor most. it is not fair tax system.

Progressive tax system helps in reducing income inequalities by causing larger burden on wealthy class of society.