Lump Sum Tax vs Unit Tax

Price Elasticity: Lump Sum Income Tax VS Unit Tax

Based on the CBC News released on September 27th2012,the TTC board is going to increase TTC tokens by $0.05 more, to finance their budget shortfall. Community might help TTC’s board to collect money that TTC needs, by applying better tax policy, such as a lump sum income tax or excise tax. A lump sum income tax on residents is better than the excise tax on TTC tokens. While the government raises the same amount of tax revenue with both options, the lump sum income tax policy diminishes residents’ degree of happiness less than the excise tax does. In this report, I will describe and compare the impact on residents’ consumption of TTC tokens and all other goods, as well as degree level of happiness, when government introduces each tax.

Introducingexcise tax on TTC tokensof $0.05 will havethe same effect as TTC increasing its tokens price, which will reduce the residents’ consumption of TTC tokens but has no impact onother goods, and diminishes residents’ degree of happiness. After the price increases, the resident’s consumption on TTC tokens will decrease by about 90 units. Two factors lead to this decrease. First, the increased price of TTC tokens will force the resident to consume fewer TTC tokens;because the resident’s total income and portion money that spending on TTC tokenshas not increased at the same time. Second, the resident will feel the raised price of TTC tokens is relatively more expense than all other goods, since the price, the portion income that spending on all other goods and the resident’s income has not changed. For the same reason, the resident can still consume the same amount of all other goods.The resident perceives all goods are “good” goods which means the resident will feel happier as he or she is consuming either one more unit of TTC tokens or all other goods. Therefore, the resident’s degree of happiness is contracted. When the resident has to consume fewer TTC tokens about 90 units of...