36 Supply I Quantity (Bottles) 48 32 Demand Price (Dollars per bottle) Şupply Price (Dollars per bottle) 24.00 16.00 28 Tax Wedge 8.00 24 (Dollars per bottle) 20 16 12 Demand 4 O 12 24 36 48 60 72 84 s6 108 120 QUANTITY (Bottles) Suppose the government imposes an $8-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is [ ] bottles, and the government collects in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $8, $16, $20, $24, $32, or $40 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax Wedge equals the value of the per-unit tax.) 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. Note: Plot your points in the order in which you would like them connected. Line segments vill connect the points automatically. 960 PRICE (Dollars per botte)

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Governments often place so-called sin taxes on goods or services such as cigarettes and alcohol. These kinds of taxes are popular with politicians because they are usually more palatable to voters than income taxes.
 
To understand the effect of such a tax, consider the monthly market for rum, which is shown on the following graph.
 
NOTE: the fill in blank options are (increases by a greater and greater amount, increases and then decreases, or increases at a constant rate)
 
Market for Rum
40
36
Supply
I Quantity
Bottles)
48
32
Demand Price
(Dollars per bottle)
Supply Price
(Dollars per bottle)
24.00
16.00
28
Tax Wedge
(Dollars per bottle)
24
8.00
20
16
12
Demand
4.
O 12 24 36 48 60
72 84 96 108 120
QUANTITY (Bottles)
Suppose the government imposes an $8-per-bottle tax on suppliers.
At this tax amount, the equilibrium quantity of rum is
bottles, and the government collects S
in tax revenue.
Now calculate the government's tax revenue if it sets a tax of $0, $8, $16, $20, $24, $32, or $40 per bottle. (Hint: To find the equilibrium quantity
after the tax, adjust the "Quantity" field until the Tax Wedge equals the value of the per-unit tax.) 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.
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.
980
864
Laffer Curve
768
672 +
576
480
384
288
192 +
96
0 4
12 16
20
24
28
32
36
40
TAX (Dollars per bottle)
TAX REVENUE (Dollars)
PRICE (Dollars per bottle)
Transcribed Image Text:Market for Rum 40 36 Supply I Quantity Bottles) 48 32 Demand Price (Dollars per bottle) Supply Price (Dollars per bottle) 24.00 16.00 28 Tax Wedge (Dollars per bottle) 24 8.00 20 16 12 Demand 4. O 12 24 36 48 60 72 84 96 108 120 QUANTITY (Bottles) Suppose the government imposes an $8-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $8, $16, $20, $24, $32, or $40 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax Wedge equals the value of the per-unit tax.) 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. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 980 864 Laffer Curve 768 672 + 576 480 384 288 192 + 96 0 4 12 16 20 24 28 32 36 40 TAX (Dollars per bottle) TAX REVENUE (Dollars) PRICE (Dollars per bottle)
Suppose the government is currently imposing a $24-per-bottle tax on rum.
True or False: The government can raise its tax revenue by decreasing the per-unit tax on rum.
True
False
Consider the deadweight loss generated in each of the following cases: no tax, a tax of $16 per bottle, and a tax of $32 per bottle.
On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hìnt: Remember that the area of a
triangle is equal to x Base x Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax
and the height is the reduction in quantity caused by the tax.)
960
864
Deadweight Loss
768
672
576
480
384
288
192
96
4
8
12 16 20
24
28
32
36
40
TAX (Dollars per bottle)
As the tax per bottle increases, deadweight loss
DEADWEIGHT LOSS (Dollars)
Transcribed Image Text:Suppose the government is currently imposing a $24-per-bottle tax on rum. True or False: The government can raise its tax revenue by decreasing the per-unit tax on rum. True False Consider the deadweight loss generated in each of the following cases: no tax, a tax of $16 per bottle, and a tax of $32 per bottle. On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hìnt: Remember that the area of a triangle is equal to x Base x Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and the height is the reduction in quantity caused by the tax.) 960 864 Deadweight Loss 768 672 576 480 384 288 192 96 4 8 12 16 20 24 28 32 36 40 TAX (Dollars per bottle) As the tax per bottle increases, deadweight loss DEADWEIGHT LOSS (Dollars)
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