Exploring the Politics of Taxation

3. Taxes and subsidies are not the only things that can be shifted. An interesting case of shifting occurred with slavery. Draw supply and demand curves for cotton. Now, suppose that slavery is introduced and that slavery is productive. What will this do to the graph that you have drawn? What will happen to the sizes of the consumers' and producers' surpluses? What do you conclude about the primary beneficiaries of slavery?

4. Gambling was once illegal throughout most of the United States. In the past fifty years, however, state governments have become major proponents and sponsors of gambling, with most states running lotteries. These lotteries are played primarily by the poor and ignorant. For every dollar bet, roughly 60 cents is paid back to participants, a rate far lower than that paid in most casino games. Does the popularity of state lotteries, given their very poor payout rate, show that people are acting irrationally?

5. The lottery can be viewed as a tax because it is a way for the government to raise money. One of its great attractions is that it is voluntary, unlike traditional taxes. What is its greatest drawback? (Hint: who plays?)

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