fig. 22.9 Effect of Consumption Tax. Using Figure 22.9 as a starting point, suppose the consumer chooses point e (spend $13 now) and point d (save $7). Suppose the government imposes a 20 percent tax...



fig. 22.9


Effect of Consumption Tax. Using Figure 22.9 as a starting point, suppose the consumer chooses point e (spend $13 now) and point d (save $7). Suppose the government imposes a 20 percent tax on spending (consumption now), meaning that for every dollar spent now, $0.20 goes to the government, leaving only $0.80 to purchase products.


a. Use a graph to show the effect of the consumption tax on the relevant curves.


b. On your graph, show, for the initial bundle ($13, $7), the tax-induced gap between the marginal utility per dollar on spending and the marginal utility per dollar of saving.


c. Which direction will the consumer go—more spending or more saving?



May 09, 2022
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here