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Corrective taxes and pollution

Chapter 10
2. Do you agree with the following statements? Why or Why not?
a. The benefits of corrective taxes as a way to reduce pollution have to be weighed against the deadweight losses that these taxes cause.
b. When deciding whether to levy a corrective tax on consumers or producers, the government should be careful to levy the tax on the side of the market generating the externality.�
Chapter 11
3.Charlie loves watching Teletubbies on his local public TV station, but he never sends any money to support the station during its fundraising drives.
a. What name do economists have for Charlie?
b. How can the government solve the problem caused by people like Charlie?
c. Can you think of ways the private market can solve this problem? How does the existence of cable TV alter the situation?
Chapter 12
The Tax Reform Act of 1986 eliminated the deductibility of interest payments on consumer debt (mostly credit cards and auto loans) but maintained the deductibility of interest payments on mortgages and home equity loans. What do you think happened to the relative amounts of hide problem
borrowing through consumer debt and home equity debt?

Solution Preview

Chapter 10
2. Do you agree with the following statements? Why or Why not?

a. This is true. There is always deadweight loss associated with tinkering with the free market. This is a loss to total welfare and thus to society as a whole. The government should therefore not interfere unless it is sure that the benefits outweigh this cost.

b. This is false. The tax will be borne more by the party with the least elasticity, regardless of what side of the market the tax is levied. Producers can raise prices on consumers if they are not sensitive to price ...

Solution Summary

Tax reform, cable television, and pollution as they relate to economics