A government is thinking about increasing the sales tax rate. ...

[Bernana]

A government is thinking about increasing the sales tax rate. Should it use static or dynamic tax analysis? Explain why one approach is better than the other.
 
  What will be an ideal response?

Question 2

The legal system in the United States tends
 
  A) to support monopolies.
  B) to actively discourage unionization.
  C) to discourage the entry of new firms into industries.
  D) to promote competition.

[fatboyy09]

Answer to Question 1

The government should use dynamic tax analysis. When estimating the expected revenue generated by the sales tax, it is important to remember that the tax base could be influenced. If the tax base decreases sufficiently in response to a tax-rate increase, total revenues may be reduced even though there has been an increase in the sales tax rate.

Answer to Question 2

D