Pretend for a moment you are a member of the group considering imposing this tax (city council, state legislature, etc).
1. Give an example of a tax that you have paid in the past. (1-5 words)
2. As an elected leader, give two reasons from the text to impose, and two not to impose the tax. (3-10 words for each reason for and against.)
3. What would the economic theory from this section of the course have to say about your tax? How will it change purchase decisions? And, what effect on revenues will it have.
In my home town in Colorado we currently have a 9% Sales Tax for all goods purchased in town.
The main reason to impose a tax is to increase tax revenue. Another reason would be do discourage unwanted sales. The main reason for not imposing a tax would be to reduce deadweight loss.
Based on the theory in this section of the course, my tax would have an impact. The size of that impact wouldn’t be known without a clear understanding of the market consumer and producer surplus, and the elasticity of the supply and demand curves. If the goal of my tax was to increase revenue then we would have to graph the proposed tax idea to understand how much maximum revenue it could bring in. But, if my goal wasn’t to produce revenue, but to discourage and curb a behavior like smoking cigarettes, then I wouldn’t care much about the revenue generated, but more on the burden to buyers and sellers. The more tax on cigarettes the more buyers wouldn’t want to smoke, and producers couldn’t afford to supply. The more you tax, the more demand falls. There is a sweet spot where revenue is maximized and that depends on the elasticity of supply and demand.
Dude.World 