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[Exam Tutorial] ECO206 Term Test 1 Topic 5 Related Past Test Question Solutions

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Topic 5: Government Grants/Taxes Knowledge Summary: • Government grants and taxes are typically introduced in the course under the topic of elasticity. Many questions onpast rexams have been related to government grants and taxes in order to measure changes in demand to those policies and often decompose them into income and substitution effects, or apply utility maximization problems to the problems. • Government grants or subsidies are often targeted at low income households in order to help them achieve a basic living standard. • Lump sum grants act like a shift in income and move the budget constraint outwards. Subsidies reduce the price of a certain good and therefore affect the slope of the budget constraint. • Similar case for lump sum taxes and percentage taxes. Lump sum taxes create a shift in the budget constraint whereas percentage taxes cause a decrease in the slope of the budget constraint. Summary of questions to be asked: • Questions on government grants and taxes combine all the four topics above into one scenario: we use labor supply budget constraints to examine the effect of taxes, we use utility ma_pfuizatioD problems to evaluate whether lump sum grants or subsidies are more efficient for a.certain goods market and we use income and substitution effects to detomsubsidiesges cre~~ and taxes. Related Past Test Questions: 2012 Midterm I Questions 4a, 4b and 4c L{ct) LA(.Ic.)zlt.S(0.s- ilA~()~ (f) [email protected] w e ~aJJe_~ f6(_.'!1+ + C. ~'l. /Let-.L ~,~ .?.++c:_ -.(JOO 0\) COS" /1<11.; .;J-f (}:J()SrrameO{)bM \~'br't f"">~\~·· (YO..xU (J-Ie..)\"io Gf).S 51t , 'l.- +C e ~OO4- ~ (3000 - ClH-+(» .) c :..'H. J f\..C\ '"to ! ) (:}./.- -0.> O .S- To, an a lJ.)e._ ~" -~O,)""H C -:J7'-::.OV )11 HX":: 1~--O ~ z 0 .~J-j()IC.-o,r_ '" ~ D t ) ci:-::{SVO {}.C ? l..-:.-,3000 ,. (2,H'" c.) ~
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