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Economics Today 18th Edition by Roger LeRoy Miller
النسخة 18الرقم المعياري الدولي: 978-0133882285Economics Today 18th Edition by Roger LeRoy Miller
النسخة 18الرقم المعياري الدولي: 978-0133882285 تمرين 2
How a Tax Differential Aided a Texas Pro Basketball Team
Dwight Howard, a 26-year-old basketball center widely regarded as one of the five best professional players, has spent the past several years playing for National Basketball Association (NBA) teams in Orlando, Florida, and Los Angeles, California. Now he is trying to decide whether to stay in Los Angeles or move to Houston, Texas. The Los Angeles team has offered him a pre-tax salary of $23.6 million per year to continue with that team for the next several seasons. Houston's NBA team, in contrast, has offered a pre-tax salary of $22 million per year.
From the perspective of many sports enthusiasts, Howard has an easy choice to make. Most of them agree that the Los Angeles team is more likely than the one based in Houston to win NBA championships with Howard on their roster. Although Howard's presence on any team probably will generate greater fan interest, more fans likely will attend Los Angeles games to cheer for Howard than would attend Houston games. Furthermore, Howard will be able to earn $1.6 million more per year before taxes if he stays in Los Angeles.
In the end, however, Howard's decision is to move to Houston. Texas has no state income tax, but California does. Thus, Howard's after-tax earnings will be more than $500,000 per year higher if he plays in Houston.
Does Howard appear to have engaged in behavior consistent with the rationality assumption?
Dwight Howard, a 26-year-old basketball center widely regarded as one of the five best professional players, has spent the past several years playing for National Basketball Association (NBA) teams in Orlando, Florida, and Los Angeles, California. Now he is trying to decide whether to stay in Los Angeles or move to Houston, Texas. The Los Angeles team has offered him a pre-tax salary of $23.6 million per year to continue with that team for the next several seasons. Houston's NBA team, in contrast, has offered a pre-tax salary of $22 million per year.
From the perspective of many sports enthusiasts, Howard has an easy choice to make. Most of them agree that the Los Angeles team is more likely than the one based in Houston to win NBA championships with Howard on their roster. Although Howard's presence on any team probably will generate greater fan interest, more fans likely will attend Los Angeles games to cheer for Howard than would attend Houston games. Furthermore, Howard will be able to earn $1.6 million more per year before taxes if he stays in Los Angeles.
In the end, however, Howard's decision is to move to Houston. Texas has no state income tax, but California does. Thus, Howard's after-tax earnings will be more than $500,000 per year higher if he plays in Houston.
Does Howard appear to have engaged in behavior consistent with the rationality assumption?
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موثّق
DH faces a choice between staying with the LA team or move to HSTN. The decision involves comparing not only the pre-tax earnings but also the after-tax salary. Observe that the pre-tax salary offered by the LA team is $23.6 million annually, which is $1.6 million more than what is offered by the HSTN's team. Despite this difference, DH chooses to move to HSTN because his after-tax salary is more when he associates with HSTN's team.
The decision seems to be solely based on the higher after-tax salary. DH has not considered the cost of living in HSTN, the facilities available to him in HSTN and the level of public utility services that are significant. The decision suffers from bounded rationality. Playing with the LA team was already accustomed to him. Rationality assumption suggests that people are rational and they consider each relevant choice. However, in the case given, this assumption was discounted
The decision seems to be solely based on the higher after-tax salary. DH has not considered the cost of living in HSTN, the facilities available to him in HSTN and the level of public utility services that are significant. The decision suffers from bounded rationality. Playing with the LA team was already accustomed to him. Rationality assumption suggests that people are rational and they consider each relevant choice. However, in the case given, this assumption was discounted
Economics Today 18th Edition by Roger LeRoy Miller
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