Representative consumer faces a wage income tax, Microeconomics

suppose, as in the federal income tax code for the united states, that the representative consumer faces a wage income tax with a standard deduction. That is the representative consumer pays no tax on wage income for the first x units of real wage income, and then pays a proportional tax t on each unit of real wage income greater than x.

Therefore, the consumer's budget constraint is given by c=w(h-1 + (Pie) if w(h-1)< x, or c=(1-t)w(h-1)+tx+(pie) if w(h-1)≥x. now, suppose that the government reduces the tax deduction x. using diagrams, determine the effects of this tax change on the consumer and explain your results in terms of income and substitution effects. Make sure that you consider two cases. in the first case the consumer does not pay any tax before is x reduced, and in the second case the consumer pays a positive tax before x is reduced.

 

Posted Date: 3/21/2013 5:15:49 AM | Location : United States







Related Discussions:- Representative consumer faces a wage income tax, Assignment Help, Ask Question on Representative consumer faces a wage income tax, Get Answer, Expert's Help, Representative consumer faces a wage income tax Discussions

Write discussion on Representative consumer faces a wage income tax
Your posts are moderated
Related Questions
List two advantages of markets identified by the authors of the text. Markets can be a significant way of allocating resources.  Markets include voluntary exchanges.  Another b

Within analysis of perfect competition, we distinguish between the short run and the long run on the basis that use of some input factors is fixed in the short run, but variable in

INTERNATIONAL MONETARY FUND: The important objectives before the Fund presently are as follows: • To promote international cooperation; • To facilitate the expansion and ba

Why is the goal of stability and security important to many people?  What problems typically emerge during periods of instability? The instability over the business cycle can b

A monopolist faces the following demand function for its product: Q = 45 - 5P The fixed costs of the monopolist are $12 and the variable costs are $5 per unit. a) What are the

International Comparisons Method In the 1960s, a few developing countries of the world looked around the developed world in search of models of development. For instance, Sout

Problem 1: (a) Differentiate between positive and negative externalities? Justify your answer using examples. (b) To what extent do government policies influence externali

Ask qI run a company that makes household power plants that use microeconomic textbooks to generate enough electricity each day for one house. Since there are a lot of used microec

Price elasticity is used in economics to determine the changes in price of goods and services. It measures the change in price demanded and quality supplied. Determinants of pri

Illustrate about the imposition of behavior assumptions in analytical frameworks of modern economics? Imposition of Behavior Assumptions: The second one step for studying