STAYER ECO 450 Week 8 Quiz 6 Ch 11 and 12
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1. A lump-sum tax results in both income and substitution effects.
2. A consumer currently pays $ 500 a year retail sales taxes. She would be better off if she paid the same amount annually as a lump-sum tax.
3. Clothing is sold in perfectly competitive markets where no externalities prevail. An excise tax on clothing will result in a market price for clothing that equals the marginal social benefit and marginal social cost of service.
4. Assuming that the income effects are negligible and that beer is sold in a competitive market, a 10-cent per can tax on beer that causes a 10,000 can per month decline in sales will result in an excess burden of $ 1,000 per month.
5. A tax on land results in an income effect on landlords but no substitution effect. Then it follows that the excess burden of a tax on land will be zero.