1. Suppose that Toronto and North York are two adjacent municipalities. North Yo
ID: 1165472 • Letter: 1
Question
1. Suppose that Toronto and North York are two adjacent municipalities. North York provides luxurious, high-cost services for its residents; Toronto provides minimal low-cost services. Initially each municipality uses a poll tax to finance its services. The residential population is in equilibrium with nobody wanting to move from one municipality to the other. Now suppose that both municipalities switch from the poll tax to a property tax to finance their services. Which of the following is likely to occur?
A. the equilibrium will be unchanged, with nobody wanting to move
B. poorer people who buy low-cost properties will tend to move from North York to Toronto
C. poorer people who buy low-cost properties will tend to move from Toronto to North York
D. poorer people who buy low cost properties will not want to move but richer people will move from North York to Toronto
E. both poorer and richer people will want to move from North York to Toronto
2. If higher levels of education in some city lead to rising productivity and falling average costs over time, this is an example of
A. dynamic localization economies
B. dynamic agglomeration economies
C. static agglomeration economies
D. static localization economies
E. none of the above
3.If a new development in some urban area causes public costs to rise but only by as much as the extra property taxes generated by the new development, then a development charge or levy is
A. efficient and therefore warranted
B. inefficient and should not be imposed
C. possibly efficient, but the anonymity test needs to be applied
D. efficient, but would distort the use of resources
E. warranted if it is less than the capitalized value of the annual taxes
Explanation / Answer
1. Suppose that Toronto and North York are two adjacent municipalities. North York provides luxurious, high-cost services for its residents; Toronto provides minimal low-cost services. Initially each municipality uses a poll tax to finance its services. The residential population is in equilibrium with nobody wanting to move from one municipality to the other. Now suppose that both municipalities switch from the poll tax to a property tax to finance their services. The likely to occur event is that poorer people who buy low cost properties will not want to move but richer people will move from North York to Toronto. So the correct option is D.
2. If higher levels of education in some city lead to rising productivity and falling average costs over time, this is an example of dynamic localization economies. So the correct option is A.
3. If a new development in some urban area causes public costs to rise but only by as much as the extra property taxes generated by the new development, then a development charge or levy is possibly efficient, but the anonymity test needs to be applied. So correct option is C.
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