Suppose a Consumption-Type, Value-Added Tax Is Introduced as a New

question 25

Essay

Suppose a consumption-type, value-added tax is introduced as a new source of revenue in the United States.Briefly describe the way the tax would work and how it would affect efficiency in labor markets and investment markets.

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Definitions:

Rental Payments

Monetary payments made periodically by a tenant to a landlord in exchange for the use of a property or equipment.

Society's Viewpoint

The collective perceptions, attitudes, and values of a community or society regarding various issues.

Marginal Revenue Product (MRP)

The change in a firm’s total revenue when it employs 1 additional unit of a resource (the quantity of all other resources employed remaining constant); equal to the change in total revenue divided by the change in the quantity of the resource employed.

Land

In addition to the part of the earth’s surface not covered by water, this term refers to any and all natural resources (“free gifts of nature”) that are used to produce goods and services. Thus, it includes the oceans, sunshine, coal deposits, forests, the electromagnetic spectrum, and fisheries. Note that land is one of the four economic resources.