Question 12: The provincial sales tax is a tax on goods. Some people say that the GST, a tax on both goods and services, is a better tax. The following graph illustrates what would happen, if all provincial sales taxes were replaced with the provincial GST, for a consumer choosing Books and Haircuts (service). Here lo and I are the Indifference curves or the two products; BL are the budget lines. BL VE.COM 5 10 15 20 25 30 35 a) Label the x axis and y axis on the above graph. b) BLo represents the budget line for (GST or Provincial tax) c) How did the consumer choice of goods change with change in the tax structure? a. Consumption choice with Provincial Tax: haircut and books b. Consumption choice with GST: haircut and books d) In the above graph show the substitution and Income effect as a result of a change in relative prices. Explain how the consumption changed as a result of substitution effect and the income effect.
Related textbook solutions
Related questions
budget line
marginal utility
complete property of preferences
market demand
consumption bundle
substitution effect
Giffen good
total effect
income effect
transitive property of preferences
indifference curves
utility
the marginal rate of substitution
utility function
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The satisfaction or benefit that consumers receive from consuming goods or services.
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A particular combination of specific quantities of goods or services |
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Consumers can rank all conceivable bundles of goods or services |
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If A is preferred to B, and B is preferred to C, then A is always preferred to C. |
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Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services. |
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A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility. |
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The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed. |
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The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant. |
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The line showing all bundles of goods that can be purchased at given prices if the entire income is spent. |
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The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes. |
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The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes. |
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The sum of the substitution and income effects. |
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A good for which quantity demanded varies directly with price, causing an upward sloping demand curve. |
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A list of prices and the corresponding quantity consumers are willing and able to purchase at each price. |
