Eric William Pratama 1 BSP/ECO 200/ICI 0109 01169 Question 1 I dont get this stuff about how suppliers

and demanders split the sales tax. Every time I go to the store, I pay all the sales tax. I have never seen a store that offered to split the tax with me. So, how can our ECO 271 lecturer says that suppliers usually have to pay part of a tax? Im lost; can you help me out? Your classmate is confused and bit lost. Using diagram/s as tool, point your friend in the right direction. Answer : A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale. Most sales taxes are collected from the buyer by the seller, who remits the tax to a government agency, sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services. Ideally, sales taxes would have a high compliance rate, be difficult to avoid, and be simple to calculate and collect. .(www.Wikipedia.org 2010) .Taxes are used to increase the revenue of the country and are later used for public projects such as roads, schools, public hospitals etc. This policy should benefit the society as taxes play a big role in our lifes. In life people does not agree if they have to be burdened by paying tax. Both sellers and buyers does not want to pay extra amount of money because they have already have their own costs to survive in the market. Thus tax incidence is applied to solve the problem. Tax incidence refers to how much each of the participants of the market pays the tax, so that each have an equal burden as to keep surviving in the market. The only difference between taxes on sellers and taxes on buyers is who sends the money to the government.(mankiw, 2009, P.127 )

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Eric William Pratama 2 BSP/ECO 200/ICI 0109 01169 Question 2 I see that we can use this indifference curve/budget line approach to derive demand curves. But why should we bother? I mean, after all, why not just use the demand curves like weve been doing all along and not worry about this other stuff? this question is reasonable. Tell your class mate why this other stuff is important. Answer: The indifference curve/ budget line a curve that shows consumption bundles that give the consumer the same level of satisfaction. The indifference curve represent his preferences. An indifference curve shows the various bundles of goods that make the consumer equally happy. Points on higher indifference curves are preferred to points on lower indifference curves. The slope of an indifference curve at any point is the consumers marginal rate of substitution-the rate at which the consumer is willing to trade one good for the other. the demand curve for any good reflects these consumption decisions. Recall that a demand curve shows the quantity demanded of a good for any given price. We can view consumers demand curve as a summary of the optimal decisions that arise from his budget constraint and indifference curves. The consumer is equally happy at all points on any give indifference curve, but he prefers some indifference curves to other. Because he prefers more consumption to less, higher indifference curves are preferred to lower ones.( Mankiw , 2009, P.480 ) Indifferent curve an increase in the price

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Eric William Pratama 3 BSP/ECO 200/ICI 0109 01169 List of references Sales Tax viewed on June 14, 2010 [ www.wikipedia.org/wiki/sales_tax ] [ Mankiw, Gregory, N 2009, Principles of economics, 5th edition, cengage learning, south-western ]

Tax Graph [http://4.bp.blogspot.com/_UkcuzFs2sZs/SlI_JxuEJnI/AAAAAAAAAKw/pxgMiv10wBs/s320/Tax+Incid ence.gif ]

Indifferent curve text [ Mankiw, Gregory, N 2009, Principles of economics, 5th edition, cengage learning, south-western ]

Indifferent curve picture viewed on June 14, 2010 [ http://www.bized.co.uk/virtual/vla/images/indiff1.gif ] [ http://www.bized.co.uk/virtual/vla/images/graph2.gif ]