# The income tax cut incidence and impact on workers, firms, savers

Discuss the income tax cut incidence and impact on workers, firms, savers. Is it possible that the Hungarian Government tax cut in the 2002 year caused the top 1% of income earners to reap the biggest benefits?
Problem 2 (4 points)
The supply of generic cheese sandwiches is perfectly elastic, the demand for generic cheese sandwiches is unit elastic, and with no tax on generic cheese sandwiches, the price is \$1 million and 240 generic cheese sandwiches a week are bought. Now generic cheese sandwiches are taxed at 20 percent. Discuss tax incidence, tax revenue, and the efficiency of this tax. Explain with words + graph.
Problem 3 (6 points) In Manitoba, farmers pay a lower price for electricity than do city residents.
 Comment about the efficiency and fairness of this allocation of electricity.
 Study and comment the welfare of market participants if farmers were charged the same price as city residents pay.
 If market price is the allocation scheme used, evaluate the efficiency of allocation of water.   Can the social planner raise the total economic well-being?
1
Problem 4 (4 points)
Consider a country that imports a good from abroad. For each of the following statements, say whether it  is true or false. Explain your answer.
a. “The greater the elasticity of demand, the greater the gains from trade.”
b. “If demand is perfectly inelastic, there are no gains from trade.”
c. “If demand is perfectly inelastic, consumers do not benefit from trade.”
Problem 5 (5 points)
Caroline has a cookie factory, with fixed cost \$100. The table below shows total product and marginal  cost for Caroline’s firm.
 Compute all various related measures of costs
 Caroline is increasing the bookkeeper’s salary. How does this affect the various measures of cost?  Caroline’s small business is a franchise, and she pays a percentage of her sales revenue to the  company that grants Caroline the franchising rights. How does this affect the various measures of cost? Explain with words + graph
total
Marginal
product
cost (\$)
0
1 90
2 80
3 70
4 60
5 60
6 90
7 90
8 110
9 130
10 150
Problem 6 (7 points)
The state of Kansas, is increasing the cost of fungicide and insecticide used by growers of blueberries.  The most impacted will be Shawne County growers, who produce about 80% of the nation’s crop.  Illustrate this situation with graphs for the blueberries market and the Shawne County grower. Start with  the situation in long run equilibrium before the cost of fungicide and insecticide increase. Next, show and  discuss the short run and long run effects of the fungicide and insecticide cost increase. Explain with  words + graphs

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