1. Taxes and efficiency The government is considering levying a tax of $100 per unit on suppliers of either leather jackets or smartphones. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for leather jackets is shown by Dr. (on the first graph), and the demand for smartphones is shown by Ds (on the second graph). Suppose the government taxes leather jackets. The following graph shows the annual supply and demand for this good. It also shows the supply curve (S + Tax) shifted up by the amount of the proposed tax ($100 per jacket). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for leather jackets. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Leather Jackets Market 240 220 Supply 200 + S+Tax Tax Revenue 180 160 Deadweight Loss 140 120 100 80 60 40 20 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) Instead, suppose the government taxes smartphones. The following graph shows the annual supply and demand for this good, as well as the supply curve shifted up by the amount of the proposed tax ($100 per phone). PRICE (Dollars per jacket) On the following graph, do the same thing that you did on the graph for leather jackets. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbois) to shade the area that represents the deadweight loss associated with the tax. Smartphones Market 240 220 Supply 200 S-Tax Tax Revenue 180 160 Deadweight Loss 140 120 100 60 40 Ds 20 100 150 200 250 300 35O 400 450 500 560 E00 QUANTITY (Phones) 50 Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss If the Government Taxes... Leather jackets at $100 per jacket (Dollars) (Dollars) Smartphones at $100 per phone If the government wants to impose the tax that is more efficient, it should tax (Hint: Assume the administrative burdens of the two tax laws are equal.) PRICE (Dollars per phone)
1. Taxes and efficiency The government is considering levying a tax of $100 per unit on suppliers of either leather jackets or smartphones. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for leather jackets is shown by Dr. (on the first graph), and the demand for smartphones is shown by Ds (on the second graph). Suppose the government taxes leather jackets. The following graph shows the annual supply and demand for this good. It also shows the supply curve (S + Tax) shifted up by the amount of the proposed tax ($100 per jacket). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for leather jackets. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Leather Jackets Market 240 220 Supply 200 + S+Tax Tax Revenue 180 160 Deadweight Loss 140 120 100 80 60 40 20 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) Instead, suppose the government taxes smartphones. The following graph shows the annual supply and demand for this good, as well as the supply curve shifted up by the amount of the proposed tax ($100 per phone). PRICE (Dollars per jacket) On the following graph, do the same thing that you did on the graph for leather jackets. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbois) to shade the area that represents the deadweight loss associated with the tax. Smartphones Market 240 220 Supply 200 S-Tax Tax Revenue 180 160 Deadweight Loss 140 120 100 60 40 Ds 20 100 150 200 250 300 35O 400 450 500 560 E00 QUANTITY (Phones) 50 Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss If the Government Taxes... Leather jackets at $100 per jacket (Dollars) (Dollars) Smartphones at $100 per phone If the government wants to impose the tax that is more efficient, it should tax (Hint: Assume the administrative burdens of the two tax laws are equal.) PRICE (Dollars per phone)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Taxes and efficiency
The government is considering levying a tax of $100 per unit on suppliers of either leather jackets or smartphones. The supply curve for each of these
two goods is identical, as you can see on each of the following graphs. The demand for leather jackets is shown by Dr. (on the first graph), and the
demand for smartphones is shown by Ds (on the second graph).
Suppose the government taxes leather jackets. The following graph shows the annual supply and demand for this good. It also shows the supply curve
(S + Tax) shifted up by the amount of the proposed tax ($100 per jacket).
On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for leather jackets. Then use the
black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
Leather Jackets Market
240
220
Supply
200 +
S+Tax
Tax Revenue
180
160
Deadweight Loss
140
120
100
80
60
40
20
50
100 150 200 250 300 350 400 450 500 550 600
QUANTITY (Jackets)
Instead, suppose the government taxes smartphones. The following graph shows the annual supply and demand for this good, as well as the supply
curve shifted up by the amount of the proposed tax ($100 per phone).
PRICE (Dollars per jacket)
Transcribed Image Text:On the following graph, do the same thing that you did on the graph for leather jackets. Use the green rectangle (triangle symbols) to
shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbois) to shade the area that
represents the deadweight loss associated with the tax.
Smartphones Market
240
220
Supply
200
S-Tax
Tax Revenue
180
160
Deadweight Loss
140
120
100
60
40
Ds
20
100 150 200 250 300 35O 400 450 500 560 E00
QUANTITY (Phones)
50
Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals.
Tax Revenue
Deadweight Loss
If the Government Taxes...
Leather jackets at $100 per jacket
(Dollars)
(Dollars)
Smartphones at $100 per phone
If the government wants to impose the tax that is more efficient, it should tax
(Hint: Assume the administrative
burdens of the two tax laws are equal.)
PRICE (Dollars per phone)
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