When filing an income tax return, one can claim a deduction for charitable contributions. Let's simplify the incometax system and assume that the tax is proportional to the level of taxable income (income after deductions).(a) Suppose we increase the marginal income tax rate. An economic adviser claims that the effect of this tax change onthe amount of charitable contributions is uncertain. Plot a simple graph that illustrates this situation (it involvesthe choice between charitable contributions and other spending), use it to explain why the effect is uncertain andexplain what it depends on.(b) Now suppose that we instead increase the marginal tax rate but also provide a transfer that makes the bundlethat used to be optimal before tax increased just affordable. According to the economic adviser this policy changewill make people contribute more to charity. Why?

Income Tax is defined as a tax that the government imposes on the income that is generated by the…

When filing an income tax return, one can claim a deduction for charitable contributions. Let's simplify the income tax system and assume that the tax is proportional to the level of taxable income (income after deductions).

When filing an income tax return, one can claim a deduction for charitable contributions. Let's simplify the income tax system and assume that the tax is proportional to the level of taxable income (income after deductions).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.15P

See similar textbooks

Related questions

Q: 30. Steve earned $50 in income last year and the current tax brackets are 20% for the first $10 of…

A: Taxes: Taxes are the government levied charges which are being imposed on the material as well as…

Q: Which of the following is not a canon of taxation? Pick a,b,c, or d a. Equity b. General…

A: Canons of taxation are defined as the various administrative features of taxation. Taxation refers…

Q: The table below presents the system in the country of Boonton. The numbers indicate the percentage…

A: Tax brackets in Boonton are given below: Income Earned Tax %…

Q: What is merits and demerits of direct tax?

A: A tax is described as one that the government imposes on citizens who participate in the economy in…

Q: ) What type of taxation does a Sole proprietorship have? Single or double B) What type of taxation…

A: Answer is given below

Q: Consider the following to tax schemes: In the first tax scheme the first 300$ is tax exempt and the…

A: The measures of tax progressivity is when the burden of tax rises with the rise in income.…

Q: Use the information in the table to answer the following question Income Amount of % of Income Tax…

A: There are three types of tax: 1. Progressive 2. Regressive 3. Proportionate

Q: Give a brief example of progressive tax system.

A: Out of the three taxes system one of these is a progressive tax system. In a progressive tax system…

Q: Percent of Income Paid in Total amount Income Tax of Tax Paid Family $10,000 10% $1,000 A Family…

A: Proportional Tax is the tax which is levied as the same percentage on each individual despite of the…

Q: 1.Social Security benefits provide 90% or more of the income for over half of Hispanic beneficiary…

A: Social security benefits refer to the payments received by qualified persons such as disabled people…

Q: Discuss how a government might use taxation to affect the distribution of income

A: In an economy, the inequality of income distribution can be explained by the situation when a richer…

Q: Roll over each income attribute, then match it with the income component it best describes. After…

A: Gross income refers to the sum of all wages, income, profits, rents, returns on investments and…

Question

When filing an income tax return, one can claim a deduction for charitable contributions. Let's simplify the income
tax system and assume that the tax is proportional to the level of taxable income (income after deductions).
(a) Suppose we increase the marginal income tax rate. An economic adviser claims that the effect of this tax change on
the amount of charitable contributions is uncertain. Plot a simple graph that illustrates this situation (it involves
the choice between charitable contributions and other spending), use it to explain why the effect is uncertain and
explain what it depends on.
(b) Now suppose that we instead increase the marginal tax rate but also provide a transfer that makes the bundle
that used to be optimal before tax increased just affordable. According to the economic adviser this policy change
will make people contribute more to charity. Why?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Briefly discuss four disadvantages of using Cost-benefit analysis to measure utility.
Question3 a) Suppose a household is faced with the choice between consuming gasoline (G) and all other goods (OG). Today the household consumes 800 liter of gasoline a year.Suppose then that a gasoline price increase is perfectly compensated by a wage increase. If the family followed the utility maximization model, how would this affect their consumption of gasoline? Explain by using a figure. b) Explain by using an example why an MRS (Marginal Rate of Substitution) between two goods must equal the ratio of the price of the goods for the consumer to achieve maximum satisfaction?
can explain this question? tq A consumer decides not to buy a VCR when her income is $20,000. However, when her income rises to $30,000, she decides to buy one. In a single diagram, draw the budget lines and indifference curves to illustrate this situation (assume the VCR costs $300 in both time periods). Be sure to label your diagram completely.
GLASS-1: Short Individual Assessment 10 A B E D U. 1 2 4 cheeseburgers 1. Refer to the figure as you answer the following questions: Bundle E has one less cheeseburger than Bundle D. What assumption(s) would still allow you to say that Bundle E is preferred to Bundle D? Briefly explain. d. Consider the utility function of individual A given by UA (X,Y) = Xº.5y0.5 in answering the items below: 2. Calculate the marginal utility for each good (MU,x & MUy) of individual A and the marginal rate of substitution (MRSxY). Interpret your computed values If Px = 0.5, Py = 1, and I = 10, solve for X*, Y*, and U* using the Lagrange a. b. Multiplier Method. pearl shakes
Solve all this question......you will not solve all questions then I will give you down?? upvote.... Need some help, will leave like. Thank you!
The following graph shows the budget constraint for a household who has to choose between consumption goods and health care services. Please explain tho difference between the two lines. Budget constraint Corsumer goods X Y(H) = pX + qM Y(H) = pX + qM Haalth care services M Y-Incone H=health ppeice of consunmer goods 9*peice of healh care services
What is the difference between the income consumption curve and the Engel curve?
A common marketing tactic among many liquor stores is to offer their clientele quantity (or volume) discounts. For instance, the second-leading brand of wine exported from Chile sells in the United States for $15 per bottle if the consumer purchases up to eight bottles. The price of each additional bottle beyond this is only $8. (a) If a consumer has $200 to divide between purchasing this brand of wine and other goods, graph the consumer’s budge set when liquor stores use this marketing tactic and the price of other goods is $1.00. (b) Assuming a consumer has standard indifference curves, will a consumer ever purchase exactly eight bottles of this wine?
3
What are the 4 basic assumption of individual preferences?
4. Show how to construct the reference dependent utility function for two friends Kate and Mary whose gains and losses are listed as follows : Kate's net worth is $ 4.5 million ( decreased from $ 5.5 to $ 4.5 million ) Mary's net worth $ 3.2 million ( increased from $ 3 to $ 3.2 million ) ( First determine the reference point ( use a parameter ) and then derive reference utility function for each ) .
2