Question

11. Washington Post columnist George Will once wrote the following: "Corporations do not pay [sales] taxes; they collect them, passing the burden to consumers as a cost of production." - George Will (2010) What is the main problem with Will's statement? (A) Corporations are subject to other taxes, such as capital gains and earned interest. (B) Producers and consumers share the burden of taxation, according to supply and demand elasticities (C) Legal ramifications for tax evasion include fines and imprisonment, thus deterring corporations from such behaviour (D) None of the above 12. Consider the following supply and demand equations in the market for labour Supply: w 15+2L Demand: w 150- L What is this market's Total Surplus? (A) $3037.5 (B) $1012.5. (C) $2025 (D) None of the above. 4

Answer 1

11. Producers and consumers share the burden of taxation according to supply and demand elasticities

Reason: The entire burden of tax cannot be passed on to consumers. The burden depends on relative elasticities

12. $3037.50

Reason: At equilibrium, 15+2L = 150-L

This gives L = 45

At L = 0, Wd = 150 and Ws = 15

Total surplus = (1/2)(150-15)(45) = 3037.5