2. Taxes and welfare Consider the market for designer handbags. The following graph shows the demand and supply for designer handbags before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of designer handbags in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. PRICE (Dollars per handbag) 400 300 PRICE (Dollars per handbag) 320 280 200 160 120 80 40 0 400 360 320 280 240 200 160 120 80 0 40 Demand Suppose the government imposes an excise tax on designer handbags. The black line on the following graph shows the tax wedge created by a tax of $80 per handbag. 0 20 First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss. A 40 Demand Before Tax Tax Wedge Supply I I 0 20 40 I 60 80 100 120 140 160 180 200 QUANTITY (Handbags) After Tax Equilibrium Supply Consumer Surplus 60 80 100 120 140 160 180 200 QUANTITY (Handbags) Producer Surplus Tax Revenue A Consumer Surplus (?) Producer Surplus Deadweight Loss Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax. Note: You can determine the areas of different portions of the graph by selecting the relevant area.
2. Taxes and welfare Consider the market for designer handbags. The following graph shows the demand and supply for designer handbags before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of designer handbags in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. PRICE (Dollars per handbag) 400 300 PRICE (Dollars per handbag) 320 280 200 160 120 80 40 0 400 360 320 280 240 200 160 120 80 0 40 Demand Suppose the government imposes an excise tax on designer handbags. The black line on the following graph shows the tax wedge created by a tax of $80 per handbag. 0 20 First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss. A 40 Demand Before Tax Tax Wedge Supply I I 0 20 40 I 60 80 100 120 140 160 180 200 QUANTITY (Handbags) After Tax Equilibrium Supply Consumer Surplus 60 80 100 120 140 160 180 200 QUANTITY (Handbags) Producer Surplus Tax Revenue A Consumer Surplus (?) Producer Surplus Deadweight Loss Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax. Note: You can determine the areas of different portions of the graph by selecting the relevant area.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Don't answer by pen paper and don't use chatgpt
Transcribed Image Text:2. Taxes and welfare
Consider the market for designer handbags. The following graph shows the demand and supply for designer handbags before the government imposes
any taxes.
First, use the black point (plus symbol) to indicate the equilibrium price and quantity of designer handbags in the absence of a tax. Then use the green
point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond
symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.
PRICE (Dollars per handbag)
400
380
PRICE (Dollars per handbag)
320
280
240
200
40
0
400
360
320
280
240
200
160
120
Suppose the government imposes an excise tax on designer handbags. The black line on the following graph shows the tax wedge created by a tax of
$80 per handbag.
80
Demand
First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the
area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer
surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss.
40
20
0
A
40
Demand
0 20
Tax Wedge
Before Tax
Supply
40
60 80 100 120 140 160 180 200
QUANTITY (Handbags)
After Tax
Equilibrium
Supply
Consumer Surplus
60 80 100 120 140 160 180 200
QUANTITY (Handbags)
Producer Surplus
Tax Revenue
A
Consumer Surplus
(?)
Producer Surplus
Deadweight Loss
(?
Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer
surplus, producer surplus, tax revenue, and deadweight loss after the tax.
Note: You can determine the areas of different portions of the graph by selecting the relevant area.
Transcribed Image Text:Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer
surplus, producer surplus, tax revenue, and deadweight loss after the tax.
Note: You can determine the areas of different portions of the graph by selecting the relevant area.
After Tax
Before Tax
(Dollars)
(Dollars)
Consumer Surplus
Producer Surplus
Tax Revenue
Deadweight Loss
0
0
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