Proportional tax is a tax where the rate of tax is fixed. It is a predetermined fixed percentage of one’s income if it is an income tax or it is a fixed percentage of the value of the product if it is a sales tax. It is also called flat tax. It is regressive in application as all the people pay same amount. Hence the people earning less pay a higher percentage of their income and the people paying more pay lesser percentage of their income. Progressive tax is a tax where the rate of taxation increases with the increase in income or value of products. Usually this is done by applying brackets to the income or value of products. For example, people with income from 0 to 20000 fall in one bracket and hence the rate of taxation is the same for the bracket as a whole let’s say 10%. People with income from 20001 to 40000 fall in another bracket and they have a different rate of taxation let’s say 12%.Progressive tax works on the logic of “ability to pay”. Creating value without producing something new is done by exchanging one good or service with other. This is done by estimating the exchange value of the goods or services to be exchanged. The quantified worth of one good or service expressed in terms of the worth of another is known as the exchange value. In the business of foreign exchange, the value of each currency is expressed in terms of value of another currency to be exchanged. This creates and exchange value or exchange rate of one currency to another. A private currency is a currency issued by private organizations. In many countries it is illegal to issue private paper currencies. Such a system (of private currencies) will create a protection against inflation. Once an available instrument or arrangement for investment of present, add- valuing currency could be created, the public would invest in great numbers, because they would want to relieve themselves of the fear of devaluing money. Interest would exist in a pure economy if there is a positive time preference. Time preference is nothing but, the relative valuation placed on a good at an earlier date compared to its valuation at a later date. Interest is thus explained as the propensity of individuals to discount the future. A positive time preference is a necessary and sufficient condition for the existence of Interest in any economy. Static view is when resources are allocated efficiently at a point in time. An example of static efficiency would be whether a firm could produce 2million cars a year more cheaply by using more labor and less capital. Productive and allocative efficiency are static concepts of efficiency, they can be used to discuss whether more could be produced now if resources were allocated in a different way. These concepts can be used for instance, to discuss whether industries dominated by a monopoly producer might produce at lower cost if competition were introduced in the industry. Dynamic view is concerned with how resoures are allocated over a period of tim.

1. Proportional tax is a tax where the rate of tax is fixed. It is a predetermined fixed percentage of
one’s income if it is an income tax or it is a fixed percentage of the value of the product if it is a
sales tax. It is also called flat tax. It is regressive in application as all the people pay same
amount. Hence the people earning less pay a higher percentage of their income and the people
paying more pay lesser percentage of their income.
Progressive tax is a tax where the rate of taxation increases with the increase in income or value
of products. Usually this is done by applying brackets to the income or value of products. For
example, people with income from 0 to 20000 fall in one bracket and hence the rate of taxation is
the same for the bracket as a whole let’s say 10%. People with income from 20001 to 40000 fall
in another bracket and they have a different rate of taxation let’s say 12%.Progressive tax works
on the logic of “ability to pay”.
Creating value without producing something new is done by exchanging one good or service
with other. This is done by estimating the exchange value of the goods or services to be
exchanged. The quantified worth of one good or service expressed in terms of the worth of
another is known as the exchange value. In the business of foreign exchange, the value of each
currency is expressed in terms of value of another currency to be exchanged. This creates and
exchange value or exchange rate of one currency to another.
A private currency is a currency issued by private organizations. In many countries it is illegal to
issue private paper currencies. Such a system (of private currencies) will create a protection
against inflation. Once an available instrument or arrangement for investment of present, add-
valuing currency could be created, the public would invest in great numbers, because they would
want to relieve themselves of the fear of devaluing money.
Interest would exist in a pure economy if there is a positive time preference. Time preference is
nothing but, the relative valuation placed on a good at an earlier date compared to its valuation at
a later date. Interest is thus explained as the propensity of individuals to discount the future. A
positive time preference is a necessary and sufficient condition for the existence of Interest in
any economy.
Static view is when resources are allocated efficiently at a point in time. An example of static
efficiency would be whether a firm could produce 2million cars a year more cheaply by using
more labor and less capital. Productive and allocative efficiency are static concepts of efficiency,
they can be used to discuss whether more could be produced now if resources were allocated in a
different way. These concepts can be used for instance, to discuss whether industries dominated
by a monopoly producer might produce at lower cost if competition were introduced in the
industry.
Dynamic view is concerned with how resoures are allocated over a period of time. You could

2. ask yourself a few questions; for example, would there be greater efficiency if a firm distributed
less profit over time to its shareholders and used the money to finance more investment? Would
there be greater efficiency in the economy if more resources where devoted to investment rather
than consumption? Would an industry invest more and create more new products over time if it
were a monopoly than if it were in perfect competition?
In terms of monopolies, you can read about allocative and productive efficiency and conclude
that in terms of monopolies, it should then give you a clear idea on how you could compare static
efficiency within a monopoly. It looks at whether efficiency occurs over a period of time rather
than a point in time. It can be argued that monopoly is dynamically efficient, whilst perfect
competition is not. Again this is probably because in perfect competition there is not incentive
for individual firms to spend on research and development. Any knowledge will quickly become
known throughout the industry and if it gives a the firm a competitive advantage it will be
copied.
Solution
Proportional tax is a tax where the rate of tax is fixed. It is a predetermined fixed percentage of
one’s income if it is an income tax or it is a fixed percentage of the value of the product if it is a
sales tax. It is also called flat tax. It is regressive in application as all the people pay same
amount. Hence the people earning less pay a higher percentage of their income and the people
paying more pay lesser percentage of their income.
Progressive tax is a tax where the rate of taxation increases with the increase in income or value
of products. Usually this is done by applying brackets to the income or value of products. For
example, people with income from 0 to 20000 fall in one bracket and hence the rate of taxation is
the same for the bracket as a whole let’s say 10%. People with income from 20001 to 40000 fall
in another bracket and they have a different rate of taxation let’s say 12%.Progressive tax works
on the logic of “ability to pay”.
Creating value without producing something new is done by exchanging one good or service
with other. This is done by estimating the exchange value of the goods or services to be
exchanged. The quantified worth of one good or service expressed in terms of the worth of
another is known as the exchange value. In the business of foreign exchange, the value of each
currency is expressed in terms of value of another currency to be exchanged. This creates and
exchange value or exchange rate of one currency to another.
A private currency is a currency issued by private organizations. In many countries it is illegal to
issue private paper currencies. Such a system (of private currencies) will create a protection
against inflation. Once an available instrument or arrangement for investment of present, add-

3. valuing currency could be created, the public would invest in great numbers, because they would
want to relieve themselves of the fear of devaluing money.
Interest would exist in a pure economy if there is a positive time preference. Time preference is
nothing but, the relative valuation placed on a good at an earlier date compared to its valuation at
a later date. Interest is thus explained as the propensity of individuals to discount the future. A
positive time preference is a necessary and sufficient condition for the existence of Interest in
any economy.
Static view is when resources are allocated efficiently at a point in time. An example of static
efficiency would be whether a firm could produce 2million cars a year more cheaply by using
more labor and less capital. Productive and allocative efficiency are static concepts of efficiency,
they can be used to discuss whether more could be produced now if resources were allocated in a
different way. These concepts can be used for instance, to discuss whether industries dominated
by a monopoly producer might produce at lower cost if competition were introduced in the
industry.
Dynamic view is concerned with how resoures are allocated over a period of time. You could
ask yourself a few questions; for example, would there be greater efficiency if a firm distributed
less profit over time to its shareholders and used the money to finance more investment? Would
there be greater efficiency in the economy if more resources where devoted to investment rather
than consumption? Would an industry invest more and create more new products over time if it
were a monopoly than if it were in perfect competition?
In terms of monopolies, you can read about allocative and productive efficiency and conclude
that in terms of monopolies, it should then give you a clear idea on how you could compare static
efficiency within a monopoly. It looks at whether efficiency occurs over a period of time rather
than a point in time. It can be argued that monopoly is dynamically efficient, whilst perfect
competition is not. Again this is probably because in perfect competition there is not incentive
for individual firms to spend on research and development. Any knowledge will quickly become
known throughout the industry and if it gives a the firm a competitive advantage it will be
copied.