Gallaway
ECO 515
Spring 200
5

Homework: Unit 3

All homework should have a cover page indicating the student's name, class, and row number. All homework assignments should be typed.  Math  and graphs can be handwritten if done very neatly. You may work in groups.  See the syllabus for relevant guidelines. You do not need to answer the red parts of the questions, but you should spend some time thinking about them.

(I suggest you cut and paste these questions into a Word document and then start from there.)

 

 1.      Explain the assumptions of the Harberger model.  Use this Model to explain the economic incidence of each of these taxes: tL & tLm.

2.     Imagine a  Supply curve where P = 3 + 2Q and a Hicksian Demand curve where P =  27 - Q.  (Note:  You should remember that quantity is a function of price (not the other way around).  I'm only using price as a dependent variable to make the math and graphs a bit easier for you.)

3.      Use an indifference curve diagram to show the excess burden of a tax on a commodity. 

4.      Give an intuitive explanation of how a tax causes deadweight loss.

5.      Explain the similarities between the Ramsey Rule, the Corlett-Hague Rule and the Inverse Elasticity Rule.

6.  Describe the income  and substitution effects of a tax on (labor) income.

7.  What is a VAT?  Explain why, when using the invoice method, there might be better compliance (less cheating) with a VAT than there is with the US's income tax.