18. During the early 1980s, the Reagan administration proposed a radical \"flatt

Question

18. During the early 1980s, the Reagan administration proposed a radical "flattening" of the tax schedule faced by ordinary US income tax payers. A very finely gradated tax schedule was replaced with one that included just three marginal tax rates 0, 15 and 28%, but generated roughly the same revenue as the previous more steeply progressive tax schedule. a. Analyze the effects of this tax reform using the tools developed in class. (Hint: use supply and demand for labor diagrams to show what happens to employment levels, dead weight loss, and tax payments for low, middle, and high income earners, whose marginal tax rate is reduced.) b. Discuss why reductions in marginal tax rates tend to reduce excess burden. c. Are there cases in which a reduction in tax rates can increase tax revenues? Explain why. 19. Many economists (and conservative commentators) argue that a consumption tax would increase the savings rates of the average person in the U.S., which would increase long term growth rates. Use indifference curves and a choice setting defined over consumption in the present (C) and consumption in the future (C) to analyze the effects of () a temporary consumption tax that affects only consumption in the current period and a permanent one that is in ettect tor both periods. (To simplify a bit, assume that all life time income or wealth will be consumed, which implies that the two period budget constraint is W- C, C2/(1+r), where r is the interest rate.) a. se indifference curves and a budget line defined over current and future income to illustrate an individuals pretax choice, (ii) the effect of a consumption tax on future consumption, and (ii) the effect of a consumption tax on both present and future consumption. b. Does a temporary consumption tax increase savings? (Why?) c. Is there a deadweight loss from a temporary consumption tax? d. Does a permanent consumption tax increase savings? (Why?) e. Is a sales tax or a VAT (value added tax) a tax that only affects current consumption? (Why o:r whv not: f. Is a sales tax normally progressive, proportional, or regressive? (In what sense?) 20. Determine marginal and average tax rates for the following income, Y, tax schedule: T=-1000 + .20Y a. Is this tax progressive, regressive, or proportional? Explain. b. Suppose that instead of -1000, the intercept of the tax schedule is C. c. Determine the values of C that makes the tax schedule regressive, (ii) proportional, (iii) progressive. Hint, recall the definition of average and marginal tax rates and apply them to this equation with a bit of algebra.]

Explanation / Answer

A monopoly  exists when a specific person or enterprise is the only supplier of a particular commodity. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few sellers dominating a market.[2] Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit.[3] The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices.[4] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.

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