Question

Economic Analysis of Taxation

g. What is a lump sum tax? What are the desirable and undesirable aspects of using a lump-sum tax to finance government expenditures?

h. What influence the magnitude of the total excess burden of a tax? If we were to have zero excess burden, how elastic should the supply or demand of a good should be?

i. What is the efficiency loss ratio of a tax? How is it used in designing a tax?

j. What is the difference between excess burden of a tax and the incidence of a tax? What the impact of zero elasticity on each?

k. What is forward and backward shifting of a tax? How is shifting related to elasticity?

l. Explain why minimizing the excess burden a sales tax would require that products with inelastic demand be taxed at higher rates than products with elastic demand.

m. Explain how a tax on one product, such as gasoline, can cause the price of other products to decline.

n. Please solve the following end of chapter problem: a. Problem 1 which starts with “The annual demand for … is given by the following equation: Qd= 500,000 – 20,000P

Answer 1

Lump some tax is the amount of tax collected fromy the peoplel by the government to finance government expenditure. It is collected in large amounts from business man as well.it is desirable as it helps in fund to the government on a large scale but is undesirable as it is a burden on the people and the society.

I.in order to minimise the tax burden it is important that prices of inelastic product should be increased as comaa red to elastic products as the former are not going to get affected by the change wherevery as the changes in latter would affect the economy immensely.

K.shifting refers to moving if the demandata curve whereas elasticity refers to upwards and downward movement along the demand or supply curve

N. Product