You are advising the government on how to pay for national defense. There are two proposals for a tax system to fund national defense. Under both proposals, the tax base is an individual's income. Under proposal A, all citizens pay exactly the same lump-sum tax, regardless of income. Under proposal B, individuals with higher income pay a greater proportion of their income in taxes.
a. Is the tax in proposal A progressive, proportional, or regressive? What about the tax in proposal B?
b. Is the tax in proposal A based on the ability-to-pay principle or on the benefits principle? What about the tax in proposal B?
c. In terms of efficiency, which tax is better? Explain
You are advising the government on how to pay for national defense. There are two proposals for a tax system to fund national defense. Under both proposals, the tax base is an individual's income. Under proposal A, all citizens pay exactly the same lump-sum tax, regardless of income. Under proposal B, individuals with higher income pay a ...
Market Failures and Exceptions
For each of the following situations, the market system has failed and/or just will not allocate resources efficiently:
Situation 1: Firm A produces cement sifters. The process includes the melting of metals and chemicals which give the sifters strength. In the production process, waste is produced and released into the river that runs alongside of the plant.
Situation 2: Some states allow students to attend certain universities within the state tuition free if they are a resident of that state. As a result of this policy, the state's population is more educated and more productive in the workplace than many other states.
Situation 3: You live in a small subdivision with several residents. The subdivision has one short dirt road that provides access to all the homes. Bob, one of the residents of the subdivision, just inherited a large sum of money and decides to have the road in the subdivision paved. After the paving, Bob asked the other residents to pay their fair share of the costs for the paving, but they all refused.
Situation 4: The President of the United States has determined that the cost associated with national defense has become too expensive. In an effort to reduce costs and balance the budget, the President has asked the public to voluntarily pay for their fair share of the costs associated with national defense. One of his advisors insists that this would not work, another advisor thinks it's good policy. Which advisor is correct?
For each of the situations above, identify the type(s) of market failure that has occurred. For each situation, explain why or how the failures came about and describe the possible remedies or solutions. Explain your answers and use graphs or diagrams to justify your answers.View Full Posting Details