macro 11 new ### 11. The Laffer CurveGovernment-imposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections.To understand the effect of such a tax, consider the monthly market for rum. With no tax, the equilibrium quantity is 50 bottles. The following table shows the equilibrium quantity produced and sold in the market for various per unit taxes.| **Tax** | **Quantity** ||----------------------|----------------|| (Dollars per bottle) | (Bottles) || 0 | 50 || 20 | 40 || 40 | 30 || 50 | 25 || 60 | 20 || 80 | 10 || 100 | 0 |Suppose the government imposes a $20-per-bottle tax on suppliers.At this tax amount, the equilibrium quantity of rum is ______ bottles, and the government collects $ ______ in tax revenue. ### Understanding the Laffer CurveNow calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels.**Instructions:**1. Place your points in the order in which you would like them connected.2. Line segments will connect the points automatically.**Graph Explanation:**- **X-Axis (Horizontal):** TAX REVENUE (Dollars) - The axis ranges from 0 to 1250 dollars, indicating the total tax revenue generated at different tax rates. - **Y-Axis (Vertical):** TAX RATE (Dollars per bottle) - The axis ranges from 0 to 100 dollars, representing the tax rate per bottle of rum.- **Plotting Points:** - Use the triangle symbols to mark the tax revenue for each tax rate. Ensure that your plotted points form a curve typical of the Laffer curve, which generally shows an initial increase in tax revenue with tax increases up to a certain point, after which further tax increases lead to a decrease in tax revenue.**Interpreting the Laffer Curve:**The Laffer curve illustrates the relationship between tax rates and tax revenue. Initially, as the tax rate increases from 0, the tax revenue also increases. However, after reaching a certain tax rate, further increases in the tax rate will lead to a decrease in tax revenue. This happens because excessively high tax rates can discourage consumption or production, thereby reducing the overall taxable base.**Scenario Analysis:**- **Current Tax Rate:** $80 per bottle**True or False:** The government can raise its tax revenue by decreasing the per-unit tax on rum.- **Options:** - True - FalseConsider the position you plotted on the Laffer curve where the current tax rate is $80 and compare the resulting tax revenue with other points to determine if reducing the tax rate might actually increase total tax revenue.

Tax Q TR 0 50 0 20 40 800 40 30 1200 50 25 1250 60 20…

11. The Laffer curve Government-imposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections. To understand the effect of such a tax, consider the monthly market for rum. With no tax, the equilibrium quantity is 50 bottles. The following table shows the equilibrium quantity produced and sold in the market for various per unit taxes. Тах Quantity (Dollars per bottle) (Bottles) 50 20 40 40 30 50 25 60 20 80 10 100 Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects $ in tax revenue.

11. The Laffer curve Government-imposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections. To understand the effect of such a tax, consider the monthly market for rum. With no tax, the equilibrium quantity is 50 bottles. The following table shows the equilibrium quantity produced and sold in the market for various per unit taxes. Тах Quantity (Dollars per bottle) (Bottles) 50 20 40 40 30 50 25 60 20 80 10 100 Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects $ in tax revenue.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: can you solve this please

A: In 2D Coordinate Plane : We have vertical axis and horizontal axis. In the graph shown the vertical…

Q: Two key macroeconomic indicators that provide insight into the standard of living in an country are:…

A: Answer: Standard of living is generally measured by the amount of goods and services available to…

Q: Refer to Figure 24-1. Suppose the economy is currently in a short-run equilibrium with output of Yo.…

A: The current output level or current real GDP is Y0. The potential GDP is Y*. Current real GDP is…

Q: The value of production in an economy is $25.13 trillion. If production increases by 1.15% then what…

A: To calculate the new value of production after an increase of 1.15%, we can use the following…

Q: Describe briefly how GDP returns to its potential level.

A: GDP is at potential level in the long run ie at the intersection of aggregate demand, aggregate…

Q: An economy has been producing two goods, Apps and Banking for a couple of years, 2021 and 2022. The…

A: The objective of the question is to calculate the nominal GDP of the economy for the year 2022.…

Q: Question 3 Explain in detail the process of Monetary Policy transmission of an increase in the cash…

A: Monetary policy refers to the policy adopted by the monetary authority of a country to control…

Q: LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year…

A: The Aggregate Demand and Supply (AD-AS) model is a macroeconomic model that illustrates the…

Q: Calculate Nominal and Real GDP for each year. Consider the base year is 2013. a. Year Bottles of…

A: Nominal gross domestic product is gross domestic product (GDP) evaluated at current market prices.…

Q: GDP is defined as the market value of all in a given time period. O a. final goods and services…

A: GDP is the value of all final goods and services produced within the domestic territory of a country…

Q: If 2019 is the base year, what is the growth in real GDP from 2020 to 2021?

A: Real GDP is the GDP value which is adjusted to inflation. It is calculated on the basis of a…

Q: Cambodinam had a GDP in 2020 of 300 billion pesos. In 2021 its GDP was 330 billion pesos. The…

A: According to the question, GDP in 2020 = 300 billion pesos GDP in 2021 = 330 billion pesos…

Q: Differentiate between Actual dollars and Constant dollars?

A: A continuous increase in the general price level is referred to as inflation. An increase in the…

Q: An economy has been producing two goods, Apps and Banking for a couple of years, 2021 and 2022. The…

A: The objective of the question is to calculate the nominal Gross Domestic Product (GDP) for the year…

Q: Assume that you are told a country’s nominal GDP decreased from one year to the next. All of the…

A: Gross domestic product (GDP) that hasn't been adjusted for inflation is referred to as nominal GDP.…

Q: Finally, type the following problem and then show all work in answering the problem's questions: 1.…

A: To determine the inflation rate, we have to find the consumer price index for each year and find the…

Q: Consider a world in which there are just three goods: teepees, tobacco, and corn. Listed below are…

A: The GDP deflator, Nominal GDPReal GDP×100 Nominal GDP measures the monetary value of the economies…

Q: How do you show in a graph the difference in behaviour of the current average productivity of labour…

A: The average productivity of labor refers to the amount of output or production generated per unit of…

Q: News headline: “South Korea’s Nominal GDP Grows by 6%” Describe the two other pieces of information…

A: GDP refers to the rise in the production of goods and services during an accounting. A rise in the…

Q: An economy produces turmeric for consumption, produces Cardamom to export, and imports sesame seeds…

A: a) Using 2015 as base year and calculating GDP for each year; Real GDP=Base year price×Current year…

Q: C I G NX…

A: GDP includes a state's financial overview, used to measure a nation's scale and the pace of…

Q: What is Business Cycle? Definition of leading, coincident, lagging indicator?

A: An economic cycle that reflects the rise and fàll of national GDP over the long term. The business…

Question

macro 11 new

### 11. The Laffer Curve

Government-imposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections.

To understand the effect of such a tax, consider the monthly market for rum. With no tax, the equilibrium quantity is 50 bottles. The following table shows the equilibrium quantity produced and sold in the market for various per unit taxes.

| **Tax** | **Quantity** |
|----------------------|----------------|
| (Dollars per bottle) | (Bottles) |
| 0 | 50 |
| 20 | 40 |
| 40 | 30 |
| 50 | 25 |
| 60 | 20 |
| 80 | 10 |
| 100 | 0 |

Suppose the government imposes a $20-per-bottle tax on suppliers.

At this tax amount, the equilibrium quantity of rum is ______ bottles, and the government collects $ ______ in tax revenue.

### Understanding the Laffer Curve

Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels.

**Instructions:**
1. Place your points in the order in which you would like them connected.
2. Line segments will connect the points automatically.

**Graph Explanation:**

- **X-Axis (Horizontal):** TAX REVENUE (Dollars)
- The axis ranges from 0 to 1250 dollars, indicating the total tax revenue generated at different tax rates.

- **Y-Axis (Vertical):** TAX RATE (Dollars per bottle)
- The axis ranges from 0 to 100 dollars, representing the tax rate per bottle of rum.

- **Plotting Points:**
- Use the triangle symbols to mark the tax revenue for each tax rate. Ensure that your plotted points form a curve typical of the Laffer curve, which generally shows an initial increase in tax revenue with tax increases up to a certain point, after which further tax increases lead to a decrease in tax revenue.

**Interpreting the Laffer Curve:**
The Laffer curve illustrates the relationship between tax rates and tax revenue. Initially, as the tax rate increases from 0, the tax revenue also increases. However, after reaching a certain tax rate, further increases in the tax rate will lead to a decrease in tax revenue. This happens because excessively high tax rates can discourage consumption or production, thereby reducing the overall taxable base.

**Scenario Analysis:**

- **Current Tax Rate:** $80 per bottle

**True or False:**

The government can raise its tax revenue by decreasing the per-unit tax on rum.

- **Options:**
- True
- False

Consider the position you plotted on the Laffer curve where the current tax rate is $80 and compare the resulting tax revenue with other points to determine if reducing the tax rate might actually increase total tax revenue.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

113.) Consider a world in which there are just three goods: teepees, tobacco, and corn. Listed below are the prices and quantities of these goods produced in the base year and in the current year. All Goods Sold in US All Goods Sold in US Goods Consumed by Typical Consumer Goods Consumed by Typical Consumer Base Year Current Year Base Year Current Year Teepees price 4 4 4 8 quantity 200 200 5 2 Tobacco price 4 3 4 3 quantity 0 200 0 5 Corn price 2 8 4 8 quantity 300 200 15 10 Using the GDP deflator calculation, the price level in the current year to three significant digits? 1 1.25 1.3 None of the above
Suppose that there are only two goods produced in an economy haircuts and banking services. Prices, quantities, and the number of workers occupied in the production of each good for year 1 and for year 2 are given in the table below Year 1 Year 2 P₁ Q₁ W₁ P₂ Q₂ W₂ Haircuts 7 120 50 9 120 50 Banking 7 190 50 9 220 60 Nominal GDP in year 1 is S (Enter your response to the nearest dollar) Nominal GDP in year 2 is S (Enter your response to the nearest dollar) Using year 1 prices, real GDP in year 2 is $ (Enter your response to the nearest dollar) The growth rate of real GDP is % (Round your response to two decimal places) The rate of inflation using the GDP deflator is % (Round your response to two decimal places) Using year 1 prices, real GDP per worker in year 1 is $ (Round your response to two decimal places) Using year 1 prices, real GDP per worker in year 2 is $ (Round your response to two decimal places) The growth rate of labor productivity between year 1 and year 2 for the whole…
If real GDP grows at an annual rate of 1.19% then we can expect real GDP to double in approximately how many years? Enter a number rounded to two decimal places. ASUS f9 f10 f11 f6 17 f8
The value of production in an economy is $24.08 trillion. If production increases by 1.65% then what is the new value of production? Round to two decimal places and do not enter a dollar sign. Leave the answer in trillions as in the new value of production is $_______ trillion.
Real and Nominal GDP jenergy drinks 2 video games year 1 price year 1 output year 2 price year 2 output 40 100 500 40 2.5 120 550 year 3 price year 3 output 45 2.5 150 600 Based on the table "Real and Nominal GDP," if year one is the base year, then the real GDP in year three, is A) 7200 В) 8250 С) 1050 D) 7500 E) none of the above
Explain how to solve According to CFR, s timeline, when did China become the world's second largest economy? • 2010 2008 2018 2015 2020
Cambodinam had a GDP in 2020 of 300 billion pesos. In 2021 its GDP was 330 billion pesos. The inflation rate in Cambodinam in 2020 was 8%. (CPI was 108) Calculate 1. The Nominal GDP growth rate in 2021. 2. The Real GDP in 2021 expressed in 2020 dollars. 3. The Real GDP growth rate in 2021 23
11 GDP measures the value of new goods and services produced by American owned companies located in the United States. True False 12 Of the four spending categories, which is the largest for the United States economy? consumption spending government spending investment spending net export spending 13 D Consider the following information about a simple economy that produces two goods across two years. The base year is 2020. Donuts Coffee 2020 Price $1.25 $1.75 What is the value of real GDP in 2021? Round to two decimal places. Type your answer... 2020 Quantity 2021 Price 80 150 $1.35 $1.95 2021 Quantity 100 186
U.S. macroeconomic data are among the best in the world. Given what you learned in the Clear It Up "How do statisticians measure GDP?", does this surprise you, or does this simply reflect the complexity of a modern economy? Suppose GDP was modified to include the value - positive or negative - of changes in environmental quality. How could this be done accurately?
Question 13 How does GDP deal with a Ford produced in Mexico? It is partially counted. It is not counted at all. Is counted at twice the value. It is fully counted
Just the asnwer is fine! Thanks
Price level LRAS LRAS2 SRAS₁ SRAS 112 B 110 A AD₁ AD₂ 11.0 11.8 12.1 Real GDP (trillions of dollars) Refer to Figure 13-4. Given the economy is at point A in year 1, what is the difference between the actual growth rate in GDP in year 2 and the potential growth rate in GDP in year 2? 2.7% 1.1% 0.3% 3.7%