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.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter16: Government Spends, Collects, And Owes

Section: Chapter Questions

Problem 20AA

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President Biden has proposed a $2.2 trillion Infrastructure package to repair roads and bridges. Some policy analysts think that at least one part of the funding will be an increase in the federal excise tax on gasoline. Suppose the size of this increase in excise tax is written as t. Using a graph analyze and explain the impact of this t dollars per gallon increase in excise tax on gasoline. Which of the curve(s), if any, would shift, and why? Graphically, show the new equilibrium price and quantity (labeling it P1 and Q1). At the new equilibrium, please determine how much of the tax increase was borne by gasoline consumers and how much was absorbed by gasoline sellers? Indicate the incidence of taxation for both consumers and sellers on the graph and explain. What will determine whether consumers or sellers will bear a higher relative burden of taxation? Please explain in detail.
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A state tax on portable electronic devices causes one store's weekly sales of high-end smartphone cases to decrease from 70 to 65. The tax is assessed at the point of sale as a tax on buyers. In the graph below, drag the appropriate curve to show a shift as a result of the tax. Then use the area tool to outline the region that represents the resulting tax revenue for the state. To refer to the graphing tutorial for this question type, please click here. Price (5) 100 150 140 130 120 110 100 00 80 70 00 50 40 30 20 10 0 D S 8 8 8 8 8 Quantity (per week)
Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax 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. TAX REVENUE (Dollars) 4000 3600 3200 2800 2400 2000 1600 1200 800 400 0 0 10 20 True 30 40 50 60 70 TAX (Dollars per bottle) False 80 + 90 100 pose the government is currently imposing a $60-per-bottle tax on gin. Laffer Curve True or False: The government can raise its tax revenue by increasing the per-unit tax on gin. ?
New York has the highest cigarette taxes in the country. The price of an average pack of cigarettes in New York City is $10.60. The combined state and city taxes are $5.95 a pack. The average income of smokers is less than that of non-smokers Draw a graph to show the effects of the $5.95 tax on the buyer's price, the seller's price, the quantity of cigarettes bought, and the tax revenue. Does the buyer or seller pay more of the tax? Why? The graph shows the market for cigarettes with no tax. Draw a point to show the market equilibrium quantity and price. Label it 1. Draw a line that shows how a $6 per pack tax changes the supply of cigarettes. Label it S+ tax. Draw a point at the new equilibrium quantity to show the price paid by buyers. Label it 2. Draw a point at the new equilibrium quantity to show the price received by the seller. Label it 3. Draw a shape that represents the tax revenue received by the government. The pays more of the tax because OA. buyer; sellers can always pass…
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Problem 2. The effects of a tax on labor income. Use the labor market graph below to help answer the questions. wage rate ($) 36 32 28 24 20 20 16 12 8 4 Suppl Deman Hours of work per week (millions) 200 400 600 800 1000 1200 1400 1600 1800 a.) The equilibrium wage is and the equilibrium quantity of labor is b.) Now suppose that the government imposes a tax of $6 on workers. i.) Show the effects on the graph. The new equilibrium wage is quantity of labor is ii.) How much of the $6 tax are workers actually paying? $ paying? $ iii.) Show the excess burden (deadweight loss) of the tax. iv.) What is the total tax revenue raised? $ and the equilibrium How much are their employers c.) Suppose that this is actually the Social Security tax, which levies half of the tax on workers and half of the tax on firms. Use the graph above (or paste a new one in below) that shows the effects of this tax if it were instead split between firms and workers. • What will be the new equilibrium wage now? • How…
On June 2, 2008, the State of New York imposed a tax of $1.25 per pack of cigarettes. Prior to the tax, the market price was $5.82 per pack and there were 1 million New York smokers. Assume that each smoker consumes one pack of cigarettes per day. After the tax, N.Y. Health Commissioner estimated that 140,000 people stopped smoking and the market price of cigarettes increased from $5.82/pack to $6.57/pack. Calculate the price elasticity of demand based on these estimates and assumptions.