4. 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 cigarettes, which is shown on the following graph. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per pack) 20 18 16 14 Supply Demand 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Packs) Suppose the government imposes a $4-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is Graph Input Tool Market for Cigarettes Quantity (Packs) Demand Price (Dollars per pack) Tax (Dollars per pack) 80 12.00 4.00 Supply Price (Dollars per pack) packs, and the government collects $ (?) 8.00 in tax revenue.

4. 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 cigarettes, which is shown on the following graph. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per pack) 20 18 16 14 Supply Demand 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Packs) Suppose the government imposes a $4-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is Graph Input Tool Market for Cigarettes Quantity (Packs) Demand Price (Dollars per pack) Tax (Dollars per pack) 80 12.00 4.00 Supply Price (Dollars per pack) packs, and the government collects $ (?) 8.00 in tax revenue.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the “Consumer Surplus from Television” application, people are asked how much they would be willing to pay to watch television or how much they’d have to be paid never to watch again. Graph what is being measured. What alternative question could have been asked that would have provided more details on the value consumers place on watching an extra hour of television?
5. Calculating tax incidence Suppose that the U.S. government decides to charge cola producers a tax. Before the tax, 25 million cases of cola were sold every month at a price of $7 per case. After the tax, 18 million cases of cola are sold every month; consumers pay $8 per case, and producers receive $5 per case (after paying the tax). The amount of the tax on a case of cola is $ per case. Of this amount, the burden that falls on consumers is $ per case, and the burden that falls on producers is $ per case. True or False: The effect of the tax on the quantity sold would have been smaller if the tax had been levied on consumers. O True O False
Question Arrange the following revenues in the federal government, from greatest to least. (1 being the greatest, 6 being the least.) Column A 1. 2. 3. 4. 5. 6. Individual Income Taxes Social Security and Medicare Taxes Corporate Income Taxes Excise Taxes Miscellaneous Revenue Customs Duties Column B a. 4 Select the three correct answers. O a Medicare and Medicaid Ob military and defense Uc state and local governments. Ud Federal Bureau of Investigation De education and transportation A f Social Security b. 2 c. 5 d. 1 e. 6 f. 3 Questio Which items are part of mandatory spending in the federal government?
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3. If all other factors remain the same, what happens to the demand curve for coffee if there is: (a) an increase in the price of tea, (b) a decrease in family income, (c) an increase in the price of coffee? In answering these questions draw and carefully label a set of axes. On the horizontal axis of your graph, show the quantity of coffee. On the vertical axis show the price per cup of coffee. Since you do not have specific data on prices and quantities demanded, just indicate prices with a P and Quantity with a Q. Focus on the general shape and position of the curves before and after events occur. Draw new curves to show what happens in each of the circumstances given, if necessary. 3. If all other factors are unchanged, what happens to the supply curve for coffee if there is: (a) an increase in wages paid to coffee store clerks, (b) an increase in the price of coffee, or (c) an increase in the number of coffee stores? In answering these questions draw graphs, as necessary, using…
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 wine, which is shown on the following graph. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. PRICE (Dollars per case) 50 45 40 35 30 25 20 15 10 5 0 1 Supply Demand 09 18 27 36 45 54 63 72 81 90 QUANTITY (Cases) Graph Input Tool Suppose the government imposes a $10-per-case tax on suppliers. At this tax amount, the equilibrium quantity of wine is Market for Wine Quantity (Cases) Demand Price (Dollars per case) Tax (Dollars per case) 36 30.00 10.00 Supply Price (Dollars per case) cases, and the government collects $ ? 20.00 in tax revenue.
Suppose Congress enacts a tax reform law, and the average federal tax rate drops from 30% to 10%. Researchers investigate the impact of the tax cut and find that the income subject to the tax increases from $600 billion to $700 billion. The theoretical explanation is that workers have increased their work effort in response to the incentive of lower taxes. On the following graph, use the green point (triangle symbol) to plot the point corresponding to the income of $600 billion. Then use the orange point (square symbol) to plot the point corresponding to the income of $700 billion. FEDERAL TAX REVENUE (Billions of dollars) 220 200 180 160 140 120 100 + 80 - 60 + 40 + 20 0 0 10 O True 20 O False 30 40 50 60 70 80 FEDERAL TAX RATE (Percent) 90 Laffer Curve 100 110 "A Income $600 Income $700 True or False: The change in income is represented by a movement along the upward-sloping portion of the Laffer curve. ?
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