a. What policy changes are meant by the phrase “tax reform”? b. What is an endow

Question

a. What policy changes are meant by the phrase “tax reform”?

b. What is an endowment in an exchange economy?

c. Why is the endowment always on the budget constraint?

d. Do you have to solve for the endowment?

e. Does the description of the set of pareto optimal allocations depend on prices?

f. If you are asked to solve for one or more pareto optimal allocations, will you compute a price?

g. Take an equation like MRSg=MRSh, how could this equation be useful? What type of question would this question help you answer it?

h. What is the relationship between DWL and economic efficiency?

Explanation / Answer

a) Tax reform refers to the process of altering the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. It includes the change from regressive to progressive or reforming the income tax or value added tax.

b) Endowment refers to the amount of goods the individual initially possesses before the exchange mechanism.

c) endowment is always on the budget line because it is affordable to him as he owns it and can comsume that bundle before he enters into an exchange transaction.

d) The endowment is already given so it is not required to be solved for.

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