Which of the following statements is correct? a) under our current tax laws, when investors pay taxes on their dividend income, they are being subjected to a form of double taxation. b) the fact that a percentage of the interest received by one corporation, which is paid by another corporation, is excluded from taxable income has encouraged firms to use more debt financing relative to equity financing. c) a corporation's payments for capital—interest and dividend payments—are tax deductible; therefore, the government does not encourage companies to use one form of financing over the other. d) if the tax laws stated that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, companies would use more debt financing than they presently do, other things held constant. e) in order to avoid double taxation and to escape the frequently higher tax rate applied to capital gains, stockholders generally prefer to have corporations pay dividends rather than to retain their earnings and reinvest the money in the business. thus, earnings should be retained only if the firm needs capital very badly and would have difficulty raising it from external sources.

You want to paint your room yellow, so you get some samples at the paint store. when you hold the sample against your white wall, it looks different from the way it looks against the green curtain. a psychologist would attribute this to perceptual constancy. visual paradoxes. contrast effects. threshold differences.

Consider how health insurance affects the quantity of health care services performed. suppose that the typical medical procedure has a cost of $160, yet a person with health insurance pays only $40 out of pocket. her insurance company pays the remaining $120. (the insurance company recoups the $120 through premiums, but the premium a person pays does not depend on how many procedures that person chooses to undergo.) consider the following demand curve in the market for medical care. use the black point (plus symbol) to indicate the quantity of procedures demanded if each procedure has a price of $160. then use the grey point (star symbol) to indicate the quantity of procedures demanded if each procedure has a price of $40. q d at p=$160 q d at p=$40 0 10 20 30 40 50 60 70 80 90 100 200 180 160 140 120 100 80 60 40 20 0 price of medical procedures quantity of medical procedures demand if the cost of each procedure to society is truly $160, the quantity that maximizes total surplus is procedures. economists often blame the health insurance system for excessive use of medical care. given your analysis, the use of care might be viewed as excessive because consumers get procedures whose value is than the cost of producing them.

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