Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose there are only two people in an economy. Under the income tax system, the marginal revenue of a 1% tax increase on Harry

 


Suppose there are only two people in an economy. Under the income tax system, the marginal revenue of a 1% tax increase on Harry is $50, and the marginal revenue of a 1% tax increase on Sally is $30. The marginal utility of Harry is 30 utils, and the marginal utility of Sally is 20 utils. To make the income tax optimal, should be taxed more, and should be taxed less.

Step by Step Solution

3.40 Rating (153 Votes )

There are 3 Steps involved in it

Step: 1

To determine the optimal taxation in this scenario we need to consider the concept of the marginal b... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance

Authors: Harvey Rosen, Ted Gayer

10th edition

9781259716874, 78021685, 1259716872, 978-0078021688

More Books

Students also viewed these Finance questions