Author Question: The larger the marginal rate of substitution, the larger is the amount of one good that the consumer ... (Read 109 times)

hubes95 · **on:** Jun 29, 2018

The larger the marginal rate of substitution, the larger is the amount of one good that the consumer is willing to give up in exchange for another good and still remain at the same level of satisfaction.

Indicate whether the statement is true or false

Question 2

Some politicians have recently suggested changing the income tax system in the U.S. to a flat tax system where all taxpayers would pay the same percentage of their income in tax to the federal government.

Explain how such a change can be analyzed in terms of efficiency. Do you believe that this tax will have equity effects as well?

ngr69 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

TRUE

Answer to Question 2

The flat tax will lower the cost of filing taxes for taxpayers and therefore increase the efficiency of government financing. However, this will place a larger tax burden on the poor than currently exists which may lead to some equity concerns.