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3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 ?

3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 ?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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```markdown ### 3. Relationship between tax revenues, deadweight loss, and demand elasticity 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 \( D_L \) (on the first graph), and the demand for smartphones is shown by \( D_S \) (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 (\( S + \text{Tax} \)) 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 Graph](graph-placeholder) #### Leather Jackets Market Graph Explanation - **Axes**: - The vertical axis represents the price in dollars per jacket. - The horizontal axis represents the quantity of jackets. - **Curves**: - The blue line labeled \( D_L \) represents the demand curve for leather jackets. - The orange line labeled "Supply" is the original supply curve. - The orange line labeled "S + Tax" represents the supply curve shifted up by the tax amount. - **Key Points**: - The intersection of the demand curve (\( D_L \)) and the original supply curve is the equilibrium without tax. - The intersection of the demand curve (\( D_L \)) and the shifted supply curve (\( S + \text{Tax} \)) indicates the new equilibrium with tax. - **Tax Revenue and Deadweight Loss Indicators**: - The green rectangle represents tax revenue. - The black triangle represents deadweight loss, showing efficiency loss due to the tax. 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). ```
Transcribed Image Text:```markdown ### 3. Relationship between tax revenues, deadweight loss, and demand elasticity 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 \( D_L \) (on the first graph), and the demand for smartphones is shown by \( D_S \) (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 (\( S + \text{Tax} \)) 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 Graph](graph-placeholder) #### Leather Jackets Market Graph Explanation - **Axes**: - The vertical axis represents the price in dollars per jacket. - The horizontal axis represents the quantity of jackets. - **Curves**: - The blue line labeled \( D_L \) represents the demand curve for leather jackets. - The orange line labeled "Supply" is the original supply curve. - The orange line labeled "S + Tax" represents the supply curve shifted up by the tax amount. - **Key Points**: - The intersection of the demand curve (\( D_L \)) and the original supply curve is the equilibrium without tax. - The intersection of the demand curve (\( D_L \)) and the shifted supply curve (\( S + \text{Tax} \)) indicates the new equilibrium with tax. - **Tax Revenue and Deadweight Loss Indicators**: - The green rectangle represents tax revenue. - The black triangle represents deadweight loss, showing efficiency loss due to the tax. 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). ```
**Smartphones Market Analysis** The graph provided illustrates the market dynamics of smartphones with a focus on the impact of taxation. ### Graph Explanation: - **Axes:** - The x-axis represents the quantity of smartphones in units. - The y-axis indicates the price in dollars per phone. - **Curves:** - The **Supply** curve is upward-sloping, reflecting suppliers' tendency to offer more smartphones as prices increase. - The **Demand (D\_S)** curve is downward-sloping, indicating that consumers purchase more smartphones as prices decrease. - The **S + Tax** curve shows the new supply line after imposing a tax. It is parallel and above the original supply curve, reflecting the increased cost due to the tax. - **Shaded Areas:** - **Green Rectangle:** Denotes the tax revenue area. It represents the difference in price paid by consumers and received by producers for the taxed quantity. - **Black Triangle:** Represents the deadweight loss area. This area lies between the original demand and supply curves and illustrates the loss of economic efficiency due to the tax. ### Table Completion Task: Fill in the table based on tax revenue and deadweight loss from taxing leather jackets and smartphones at $100 per unit. | If the Government Taxes... | Tax Revenue (Dollars) | Deadweight Loss (Dollars) | |------------------------------|-----------------------|--------------------------| | Leather jackets at $100 per jacket | | | | Smartphones at $100 per phone | | | ### Policy Implication: The government should focus on taxing the good that maximizes tax revenue while minimizing welfare loss. Generally, taxing a product with relatively **inelastic** demand offers higher tax revenue and reduced deadweight loss, as consumer purchase quantity does not significantly decrease with price increases.
Transcribed Image Text:**Smartphones Market Analysis** The graph provided illustrates the market dynamics of smartphones with a focus on the impact of taxation. ### Graph Explanation: - **Axes:** - The x-axis represents the quantity of smartphones in units. - The y-axis indicates the price in dollars per phone. - **Curves:** - The **Supply** curve is upward-sloping, reflecting suppliers' tendency to offer more smartphones as prices increase. - The **Demand (D\_S)** curve is downward-sloping, indicating that consumers purchase more smartphones as prices decrease. - The **S + Tax** curve shows the new supply line after imposing a tax. It is parallel and above the original supply curve, reflecting the increased cost due to the tax. - **Shaded Areas:** - **Green Rectangle:** Denotes the tax revenue area. It represents the difference in price paid by consumers and received by producers for the taxed quantity. - **Black Triangle:** Represents the deadweight loss area. This area lies between the original demand and supply curves and illustrates the loss of economic efficiency due to the tax. ### Table Completion Task: Fill in the table based on tax revenue and deadweight loss from taxing leather jackets and smartphones at $100 per unit. | If the Government Taxes... | Tax Revenue (Dollars) | Deadweight Loss (Dollars) | |------------------------------|-----------------------|--------------------------| | Leather jackets at $100 per jacket | | | | Smartphones at $100 per phone | | | ### Policy Implication: The government should focus on taxing the good that maximizes tax revenue while minimizing welfare loss. Generally, taxing a product with relatively **inelastic** demand offers higher tax revenue and reduced deadweight loss, as consumer purchase quantity does not significantly decrease with price increases.
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Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. If the Government Taxes... Leather jackets at $100 per jacket Smartphones at $100 per phone Tax Revenue (Dollars) smaller deadweight loss. Deadweight Loss (Dollars) 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:Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. If the Government Taxes... Leather jackets at $100 per jacket Smartphones at $100 per phone Tax Revenue (Dollars) smaller deadweight loss. Deadweight Loss (Dollars) 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
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