1. A) Sketch a hypothetical Laffer curve. Be sure to label the axes. B) In the absence of negative externalities what side of the curve should your tax rates be on? C) Could there be different Laffer curves? 2. Suppose a city uses a retail sales tax. A) What is the tax base? B) Could increasing the retail sales tax rate affect the size of the tax base? C) List at least 2 ways increasing the retail sales tax rate could increase the inefficiency of the tax. D) Are retail sales taxes usually regressive? E) Some citizens advocate exempting medicine and food from the sales tax. How could the tax base be affected directly and indirectly by these proposed exemptions? 3. List 7 key criteria that from a public finance perspective should be used in choosing whether an area of government activity should be under federal, state, or local government control. 4. Please use separate sketches to illustrate the concept of a local government budget constraint and how it is affected by: A) an unconditional grant B) a matching grant C) a closed-ended matching grant D) For each of these grant types please also indicate if you expect any income and/or substitution effects.