Short Answer 1. Corporate income is taxed twice-once in the form of corporate in

Question

Short Answer

1. Corporate income is taxed twice-once in the form of corporate income tax and the second time when the owner must pay income tax on dividends. What are the effects of this double taxation?

            2.   Should stock market speculation be encouraged or discouraged?

            3.   Why does the supply curve of the perfectly competitive industry shift to the right whenever a new firm enters the industry?

            4.   What is the relationship between the long-run industry supply curve and the short-run supply curve in a perfectly competitive market?

            5.   Provide two circumstances where monopoly may offer efficiency advantages over competition.

            6.   What are the reasons for preferring competition to monopoly?

            7.   What are the advantages and disadvantages of resource allocation under monopolistic competition compared to perfect competition?

            8.   What quantity of output and price do they try to set, when a group of oligopoly firms form a cartel? Will there be any changes in the price and quantity supplied if the cartel gets broken down?

            9.   Is it likely that oligopolistic firms will be in both a kinked demand curve situation and also engage in price leadership? Why or why not?

          10.   Explain the prisoner's dilemma case in game theory and its relevance to the maximin criterion.

Explanation / Answer

1)

The concept of double taxation on dividends paid to shareholders has prompted significant debate. While some argue that taxing dividends received by shareholders is an unfair double taxation of income because it was already taxed at the corporate level, others contend this tax structure is fair.

Proponents of keeping the "double taxation" on dividends point out that without taxes on dividends, wealthy individuals could enjoy a good living off the dividends they received from owning large amounts of common stock, yet pay essentially zero taxes on their personal income.

2)

Speculation helps us far more than it could ever hurt us by moving risk to those who can financially handle it. Despite the misunderstanding and negativity speculators have to face, the potential for outsized profits will continue to attract people, as long as governments don't regulate them into oblivion. With all the negativity aimed towards short-sellers and speculators, it's easy for us to forget that their activities maintain prices, prevent shortages and increase the amount of risk they undertake. I don't want to become a speculator, but it's important that we preserve speculative investing for the people who do – more than important, it's a necessity for a healthy market and vibrant economy.

3)

A market supply curve is the aggregation of the output of individuals firms so if new market players enter into the industry then market supply curve shifts to the right means more amount of output.

4)

In long run, factors are not fixed but in short run capital is fixed. In the long run, firms continue to enter into and exit from the industry. Firms get economies and diseconomies of scale. This displaces the long run marginal cost (LMC).

Short run supply curve contains as envelope theorem in long run supply curve.

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