Metropolitan State University

Metropolitan State University ECON 202 Fall 2007 Assignment #8, due 11/26 (Mon) or 11/28 (Wed)

1. Explain why high Social Security tax rates may result in fewer people going to college.

2. Diagram the following taxes, showing the pre-tax quantity, the post-tax quantity, the dead weight loss from the tax, the burden on consumers and the burden on suppliers. A. A tax on suppliers B. A tax on consumers

3. Show the relative tax burden on consumers and producers in the cases of: A. Inelastic supply B. Elastic supply

4. Imagine that marginal income tax rates are as follows: 10% on the first $20,000 of income 20% on the next $50,000 of income 30% on the next $50,000 of income 40% on all additional income Calculate the average tax rate for a person with income of A. $30,000 B. $120,000

5. Read the eleventh chapter from Charles Wheelan's book Naked Economics: Undressing the Dismal Science (ISBN 0-393-32486-9) and answer the following questions. Chapter 11 is titled Trade and Globalization and I would be a poor instructor if I did not ask you to read this chapter. A. According to the book, what country is the world's largest exporter? B. What was the opportunity cost of the U.S. domestically producing steel rails for the transcontinental railroad? How does this compare with the opportunity cost of producing them in England? C. How does the tariff on imported oranges hurt poor people in Brazil? How does the tariff imposed on imported ethanol (also from Brazil) hurt poor people in Brazil? How do barriers to importation of cheap sugar from the Dominican Republic hurt poor people there? How do these tariffs affect the consumers of these goods in the U.S.?

Happy Fun Questions 1. Explain why too few people get flu shots.

2. The marginal Social Security tax rate is 12.4%, but it is only applied to the first $90,000 of income. Calculate the average Social Security tax rate for a person making $40,000 and for a person making $200,000 and explain why this is a regressive tax.