Answer to Question #96093 in Microeconomics for Alex

Question

Provide short answers to the following questions. (a) You and your cousin have identical high school grade point average and SAT scores. But because you select Economics as your major and your cousin selects philosophy, you will end up with higher salary and higher taxes. Is this vertically equitable? Is it horizontally equitable? Define “positions” in terms of people’s abilities or income as needed. (b) There are two goods A and B – good A has a normal downward sloping demand and good B has a vertical demand. From the efficiency point of view, how sales of these goods should be taxed to raise a certain (fixed) amount of the tax revenue? What are the possible implications of such taxation for equity?

Answer 1

A) a specialist in a branch of the economy as a commodity is absolutely inelastic, since in this area personnel will always be needed, regardless of salary. While the number of philosophers required is dictated by free jobs in educational institutions. Therefore, the elasticity curve of the economist will tend to the vertical, and philosophers will have the usual curved appearance, tending to the horizontal, with a limit in quantity at a certain level. B) the share of taxation in the price of goods must be less, since the demand for it is not stable and depends on the price. While the taxation of goods A can be relatively higher, because its producers will not suffer from rising prices (demand does not decrease).