MacEwan University

Econ 353-AS01: Taxation Policy and Structure

Fall 2019
Instructor: Dr. Ergete Ferede
Homework Assignment #1 Due: September 20, 2019 (in class).

1. What do you think would be the rationales or justifications for government

intervention in the following areas? Please make your answers brief. (24
percent)

(a) The government builds a network of cross-country highways.

(b) University education is subsidized by the government.
(c) Government provides subsidized crop insurance for farmers.
(d) The government plans to introduce stringent vehicle emission standards
in the country.

2. Some people argue that we should have a “fat tax” — a tax on sugary and fatty
foods—to promote a healthy life in Canada.

Discuss the efficiency, equity, visibility, and administrability of a “fat tax”. (30
percent). (Please restrict your answers to one page.)

3. Suppose the annual demand for and supply of cigarettes is equal to:

Demand: QD= 1,000 – 40P

Supply: QS =60P, where P is the price of cigarettes per carton.

(a) Solve for equilibrium annual quantity and price of cigarettes. (6 percent)
(b) Suppose the government introduces a $1.50 tax per carton on cigarettes and
collects it from producers. What is the after-tax equilibrium price and quantity
of cigarettes? (10 percent)
(c) Calculate the share of the tax burden borne by consumers and producers.
(10 percent)
(d) How much tax revenue does the government collect? (10 percent)
(e) Calculate the excess burden of the tax. (10 percent)

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