Suppose That the Ratio of Retirees to Working Citizens Is

question 25

Essay

Suppose that the ratio of retirees to working citizens is currently 1 to 5,meaning that there are 5 working people for every retiree.Suppose that in thirty years the ratio will change to 1 to 2.If benefits remain the same,what will happen to the tax rate assuming retirees are provided benefits in a pay-as-you-go system? How much would benefits decrease if the tax rate remained the same?

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Definitions:

Total Surplus

The combined benefit that both consumers and producers receive from a transaction, comprising consumer and producer surplus.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e., the market price).

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, often reflecting gains from trade.

Tariff Revenue

Income generated by a government from imposing tariffs on imported goods.