9. Suppose the wage of unskilled workers is equal to the minimum wage. If a tax
ID: 1109030 • Letter: 9
Question
9. Suppose the wage of unskilled workers is equal to the minimum wage. If a tax on labor is levied onthe presence A. workers; does not affect the tax burden of workers B. workers; reduces the tax burden of workers C. firms; reduces the tax burden of firms minimum wage D. firms; does not affect the tax burden of firms. 10. Suppose the government levies a tax on all ink pens sold in the country. Assume all goods are normal goods. Which of the following is a spillover complementary effect of the tax A. Pcople buy fewer pencils because they have less income B. People buy less paper as a result of the tax. C. People buy more pencils because pencils are now cheaper compared with pens. D. People buy more ink pens because sellers bear the tas Part II (20 points): There are THREE questions in this section. All answers must be justified this means t explanations for any answers. that you must show your calculations and give 1. (7 points) Suppose that the Smith family has four family members and earns S100,000 per year. Among their expenses were $2,000 on interest on home mortgage and S1,200 payment on the principal of their home. They also donated S3,000 to charity, paid $7,000 in local taxes and spent S8,000 on food. The standard deduction is S11,400 and the exemption per person is $3,650. (a) Which kind of deduction should the Smiths use to minimize their tax bill, standard deduction or itemized deduction? (b) Calculate how much the Smiths owe in taxes to the government. Plcase use the tax table below Taxable Income Marginal Tax rate Over SO $10,000 30,000 But not over $10,000 $30,000 10% 30% (c) What is their marginal tax rate? (d) What is their effective average tax rate?Explanation / Answer
9. if a tax on labor is introduced on firms , the firm has not to pay anything, all burden reaches the workers.
thus, the burden of tax falls on the workers (EG Income tax- all the tax burden is on the employee only)
hence answer is part D)
10. if a tax is levied on ink pens, it makes the pens costlier, pens would be purchased less,with a complementary effect, paper would be purchased less as the requirement of paper would fall.
answer is part B)
note: here pencils would not be considered here as pencils are substitute goods.if they had asked about substitue effect, we would have mentioned that pencils would be purchased more.
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