Economists argue that the corporate income tax is an example of a ...

[jwb375]

Economists argue that the corporate income tax is an example of a tax with a high deadweight loss because
 
  A) it encourages corporations to seek ways to evade taxes.
  B) taxing a corporation's income amounts to double taxing the earnings on individual shareholders' investments in corporations.
  C) some of the burden of the tax is passed on to consumers in the form of higher prices.
  D) it discourages corporations from undertaking capital investments to enhance market competitiveness.

Question 2

Consider two industries, industry W and industry X. In industry W there are five companies, each with a market share of 20 of total sales. In industry X, there are six companies.
 
  One company has a 50 market share and each of the other five firms has a market share of 10.
 
  a. Calculate the four-firm concentration ratio for each industry.
  b. Calculate the Herfindahl-Hirschman Index (HHI) for each industry.
  c. What do the values of the two concentration measures imply about the degree of market power in the two industries?
 
  Figure 15-18

[ansleighelindsey]

Answer to Question 1

B

Answer to Question 2

a. The concentration ratio in industry W =20 + 20 + 20 + 20 = 80. The concentration ratio for industry X = 50 + 10 + 10 + 10 = 80.
b. The HHI for industry W = 400  5 = 2,000 and the HHI for industry X = 2,500 + (100  5 ) = 3,000.
c. Both industries are highly concentrated. Although the concentration ratios are the same for each industry, market power is more significant in industry X. The ability to raise prices is greater in industry X.