Question

1)

In 2013, the IRS published a famous study that showed that the top 10 percent of households that earned the most money paid 70 percent of all federal taxes. The top 25 percent of households paid 87 percent of all federal taxes. Meanwhile, the entire bottom 50 percent of households only paid 3 percent of all federal taxes. It also showed that the bottom 50 percent of households received about half of all the taxes paid by the top 50 percent of households in the form of financial assistance such as college grants, food stamps, Section 8 housing subsidies, and other entitlement programs. What can we conclude?

Answer Choices:

• All statements are correct according to economic theory.

• This study definitely shows there is a major redistribution of wealth from the top earning U.S. households to the bottom half of U.S. households.

• If someone said, “It’s not fair that the wealthy are not paying more taxes,” then this would be a normative economic statement with the information we have from the IRS.    

• Since there were statistical studies performed, then we can say these findings were based on positive economics.

2) We already know what the standard monopoly graph looks like. Academically speaking, what does a government run monopoly graph for Social Security and Medicare look like?

Answer choices:

• The government doesn’t have a monopoly graph and they don’t use the MC=MR formula

• The government uses the cartel graph to represent government-run programs

• The government uses the Price = AFC graph

• The government uses the same monopoly graph as business and they use the MC=MR formula

Answer 1

Q1) The answer is (a) all statements are correct according to economic theory

(b) is correct because the study indeed shows that the top income earners pay more taxes which are distributed to the poor.

(c) is correct because 'It’s not fair that the wealthy are not paying more taxes' is a statement that makes a value judgement which can not be proven right or wrong. there is no limit it more. Thus, it is a normative statement.

(d) is correct as the use of statistical tests indeed allows us to test the validity of the findings and thus these are fact-based statements or positive statements.

Thus, the answer is (a)