Question

Mailings Review View AaBbccodte A aBbCcD AaBbceDdE Aal Normal No Spacing Heading 1 Heading 2 Tit #C Trump corporate tax; health insurance; luncheon club dilemma 1. computation of shareholder's tax rate when corporate tax rate is 35% and the dividend tax is 15% la, how does this change when corporate tax rate changes into 15%? 2. Consider an insurance policy of full coverage (all expenses covered). When a person is hospitalized, the patient bears no financial cost if her stay is prolonged. This is likely to lead the person to overconsume any medical care that has any benefit if the insurance company incurs the expense. Using the figure below answer questions The person's demand for health service is DI and the marginal cost of health service care is $10 per unit D2 P-$10 100 200 Medical Care D. if the person does not have insurance, how much medical care would he consume? (ii), with the full coverage insurance, bow much would he consume? (ii). How much is the welfare loss or excess burden? Shade the excess burden in the figure. (iv). The insure person is required to pay 20% of the cost. How much medical care would he consume? Calculate the excess burden or welfare loss in this case. Focus

Answer 1

1. For shareholders, it is only the dividend that is taxed; the dividend tax rate is 15 per cent. When the corporate tax rate changes, and, the dividend tax rate is the same, the shareholder tax rate remains the same.

2 i) 100 visits or care unit. This is the point of equilibrium

ii) 200 visits or care units. The demand is high in case of full coverage; all expenses covered

iii) Welfare loss = 100*10 = 1000

Marginal cost = $10 health service / care

iv) Can pay the sum that he spends on care without insurance = 100*10 = 1000

20 per cent = 2*200 = 400 as the cost for the person = 0.2 *10 = $2

This depends on the cost of insurance

Sum spent = 1000 - the cost of insurance

Overconsumption = (1000 - cost of insurance) / 2