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WEEK 5 - The Role of Government

QUESTIONS ???

SURVEY RESULTS

Is the price of gasoline too low?

YES 48%
NO 52%

WEEKLY ASSIGNMENTS

• Worked Problem 4.1 at http://www.mcconnell17.com
• Web Quizzes at http://www.mcconnell17.com
  • 1: #1-4, 8, 9
  • 2: #3, 5, 6, 8, 9, 10
  • 3: #4-7, 9
• Study Guide
  • Multiple Choice: # 9-17, 19-25; ALSO p. 36 (ch.3) # 29, 30
• Problems: # 2, 4; ALSO p. 33 (ch.3) # 7

REVIEW:

• spillover_cost_review.htm
• spillover_benefit_review.htm
• http://www.harpercollege.edu/mhealy/eco211/review/govtfcns/revgtfcn.htm [not # 15, 16]
• http://www.harpercollege.edu/mhealy/eco212/review/revgovfc.htm
• http://www.harpercollege.edu/mhealy/eco212/review/revgovsz.htm
• Video: Externalities (12:09)

• SHOULD GAS PRICES BE HIGHER?
  • Listen to the news article below.

    Outline a short paper WITH GRAPHS explaining the following:

    • Why does James Surowiecki believe the current price of gasoline is too low and results in inefficiency?
      • which kind of inefficiency?
      • does he believe that there are spillover costs or spillover benefits and what are they?
      • show the inefficient quantity on your graph
    • What are the effects of the higher tax that James Surowiecki is proposing?
      • what effect does it have on efficiency?
      • show the effect of the higher tax on your graph
      • use your graph to discuss how the tax makes the market for gasoline more efficient

    Arguing the Upside of High Gas Prices Morning Edition, September 22, 2005 One writer believes gas prices actually should be high. Steve Inskeep talks with James Surowiecki, a financial columnist for The New Yorker who says a 50-cent gas tax would make drivers pay for the real cost of cars on the road and make business cater to the fuel-conscious. http://www.npr.org/templates/story/story.php?storyId=4858826

• Tax Rates: http://highered.mcgraw-hill.com/sites/0073273082/student_view0/chapter4/worked_problems.html
  • Suppose you live in the hypothetical country of Evergreen. Evergreen does not tax the first $10,000 of income, but imposes a tax of 10% on the next $30,000 of income, 20% on the following $60,000, and a top rate of 30% on any income above $100,000.

    1. Suppose your income is $20,000. What is your marginal tax rate? What is your average tax rate?

    2. Further suppose your neighbor's income is $50,000. What is her marginal tax rate? What is her average tax rate?

    3. Is Evergreen's tax structure progressive, proportional, or regressive?