Answer to Question #276756 in Microeconomics for Anna

Question

In the country of Tansyland there are 5 states and each state has 20,000 people that reside there. The amount of income varies for each person and each person in Tansyland is taxed based on the total cost of government-funded projects divided by the number of people who live in Tansyland. Three states are located on the coast of the Pacific Ocean and each have one government-funded lighthouse. A lighthouse can add up to $1 million per year to an individual state’s local economy. The yearly marginal benefit to Tansyland of having another lighthouse is shown in the graph below.

Given the information above, taxes in Tansyland are:

A. regressive. 

B. based on each resident’s willingness to pay.

C. proportional.

D. progressive.

Answer 1

C. proportional.

A proportionate tax is one in which the tax rate remains constant regardless of whether the taxable base amount increases or decreases. Each Tansyland resident gets taxed depending on the total cost of government-funded projects divided by the number of Tansyland residents. Therefore, the tax is fixed for everyone regardless of the income of the people or the government project