is perfectly elastic; the supply curve for good B is a typical, upward-sloping curve; and the supply curve for good C is perfectly inelastic Suppose the federal government imposes a tax of $20 per unit on suppliers of each good Explain and illustrate graphically how the tax will affect the price of each good in the short run Show whether the equilibrium quantity will rise, fall, or remain unchanged Who bears the burden of the tax on each good in the short run? (Hint: Review the chapter on the elasticity for a discussion of perfectly elastic and perfectly inelastic supply curves; remember that the tax increases variable cost by $20 per unit.) Case in Point: What Are Marginal Tax Rates We speak often of the importance of tax rates at the margin—of how much of an extra dollar earned through labor or interest on saving will be kept by the decision-maker It turns out, however, that figuring out just what that marginal tax rate is is not an easy task Consider the difficulty of untangling just what those marginal tax rates are First, Americans face a bewildering complex of taxes They all face the federal income tax Each state—and many cities—levy additional taxes on income Then there is the FICA payroll tax, federal and state corporate income taxes, and excise taxes, as well as federal, state, and local sales taxes A person trying to figure out his or her marginal tax rate cannot stop there Gaining an additional dollar of income will affect not only taxes but eligibility for various transfer payment programs in the level of payments the individual or household can expect to receive Given the enormous complexity involved, it is safe to say that no one really knows what his or her marginal rate is Economists Laurence J Kotlikoff and David Rapson of Boston University have taken on the task of sorting out marginal tax rates for the United Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 820