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Question
Suppose the supply of land is perfectly inelastic and landowners are receiving payments equal to $25,000 an acre. If the government taxed the landownersʹ income with a tax rate of 80 percent, how much tax would the government collect?
A) Zero, because the owner would do something else with the tax rather than pay such a high tax.
B) Less than $20,000 because the owners would change their behavior so as to pay less tax.
C) More than $20,000 because the combined effects of all the owners trying to change their behavior actually would generate higher returns.
D) $20,000 because the use of the land doesnʹt depend on the price the landowners receive for the land.
Answer
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