3. Relationship between tax revenues, deadweight loss, and demandelasticity The government is considering levying a tax of $100 per unit on suppliers of either pickleball paddles or metro cards. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for pickleball paddles is shown by Dp (on the first graph), and the demand for metro cards is shown by DM (on the second graph). Suppose the government taxes pickleball paddles. 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 paddle). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for pickleball paddles. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. (?) PRICE (Dollars per paddle) 240 220 200 180 160 140 120 100 80 60 40 20 0 + 0 Pickleball Paddles Market S+Tax Supply Dp 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Paddles) Tax Revenue Deadweight Loss Instead, suppose the government taxes metro cards. 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 card). On the following graph, do for metro cards the same thing you did previously on the graph for pickleball paddles. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for metro cards. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
3. Relationship between tax revenues, deadweight loss, and demandelasticity The government is considering levying a tax of $100 per unit on suppliers of either pickleball paddles or metro cards. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for pickleball paddles is shown by Dp (on the first graph), and the demand for metro cards is shown by DM (on the second graph). Suppose the government taxes pickleball paddles. 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 paddle). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for pickleball paddles. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. (?) PRICE (Dollars per paddle) 240 220 200 180 160 140 120 100 80 60 40 20 0 + 0 Pickleball Paddles Market S+Tax Supply Dp 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Paddles) Tax Revenue Deadweight Loss Instead, suppose the government taxes metro cards. 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 card). On the following graph, do for metro cards the same thing you did previously on the graph for pickleball paddles. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for metro cards. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:On the following graph, do for metro cards the same thing you did previously on the graph for pickleball paddles. Use the green rectangle (triangle
symbols) to shade the area that represents tax revenue for metro cards. Then, use the black triangle (plus symbols) to shade the area that represents
the deadweight loss associated with the tax.
PRICE (Dollars per card)
240
220
200
180
160
140
120
100
80
60
40
20
0
Metro Cards Market
S+Tax
Supply
0 50 100 150 200 250 300 350 400 450 500 550 600
QUANTITY (Cards)
If the Government Taxes...
Pickleball paddles at $100 per paddle
Metro cards at $100 per card
M
smaller deadweight loss.
Tax Revenue
Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals.
Tax Revenue
(Dollars)
Deadweight Loss
(Dollars)
Deadweight Loss
Suppose the government wants to tax the good that will generate more tax revenue at a lower welfare cost. In this case, it should tax
because, all else held constant, taxing a good with a relatively
elastic demand generates larger tax revenue and
Transcribed Image Text:3. Relationship between tax revenues, deadweight loss, and demandelasticity
The government is considering levying a tax of $100 per unit on suppliers of either pickleball paddles or metro cards. The supply curve for each of
these two goods is identical, as you can see on each of the following graphs. The demand for pickleball paddles is shown by Dp (on the first graph),
and the demand for metro cards is shown by DM (on the second graph).
Suppose the government taxes pickleball paddles. 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 paddle).
On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for pickleball paddles. Then use the
black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
PRICE (Dollars per paddle)
240
220
200
180
160
140
120
100
80
60
40
20
0
0
Pickleball Paddles Market
S+Tax
50 100 150
Supply
Dp
200 250 300 350 400 450 500 550 600
QUANTITY (Paddles)
Tax Revenue
Deadweight Loss
Instead, suppose the government taxes metro cards. 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 card).
On the following graph, do for metro cards the same thing you did previously on the graph for pickleball paddles. Use the green rectangle (triangle
symbols) to shade the area that represents tax revenue for metro cards. Then, use the black triangle (plus symbols) to shade the area that represents
the deadweight loss associated with the tax.
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