1.What is double dividend effect?2.Consider two possible tax schemes on natural resources. One levies fixed

1.What is double dividend effect?

2.Consider two possible tax schemes on natural resources. One levies fixed

fee per production amount (for example, per barrel for oil and per tones for iron ore) while the other levies fixed percentage on total revenue. Which one is better in terms of flexibility and why?

3. Does income taxation satisfy horizontal equity? If it is, why? Or if it isn’t, why?

4.If we want to maximize the tax revenue while minimizing the reduction of quantity traded in a competitive market, should we use unit tax or ad valorem tax?

5.In an editorial titled “Truth and Lies About Medicare,” the New York Times discussed the financing of the Affordable Care Act of 2010, and stated: “And a further chunk [of revenue] will come from fees or taxes imposed on drug makers, device makers and insurers-fees that they can surely afford since expanded coverage for the uninsured will increase their markets and their revenues.”

a.Consider a firm that has a monopoly on the production of a particular medical device. A tax of 10 percent is levied on the sales of the firm. What is the editorial implicitly assuming about the incidence of this tax?

b. Assume that the firm has standard linear average revenue and marginal revenue curves, and produces with constant and positive marginal cost. I want to prove that the firms profits and the price paid by consumers of medical devices before and after the tax is imposed. How?

c. By part b, the editorial writer did not understand how to think about the incidence of a tax. I want to know about the error.

Ad valorem tax Unit tax b Q1Qt Q1Quantity Qt Quantity Price Price

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