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 vodka, 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 bottle) 100 SSRSRSRRS He Graph Input Tool Market for Vodka Quantity (Bottles) Demand Price (Dollars per bottle) Tax (Dollars per bottle) 40 80.00 20.00 Supply Price (Dollars per bottle) 40.00

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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 vodka, 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 bottle)
100
222889RR2.
00
Supply
300000 100
QUANTITY (Bottes)
Graph Input Tool
Market for Vodka
Quantity
(Bottles)
Demand Price
(Dollars per bottle)
Tax
(Dollars per bottle)
40
60.00
20.00
Supply Price
(Dollars per bottle)
40.00
Transcribed Image Text: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 vodka, 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 bottle) 100 222889RR2. 00 Supply 300000 100 QUANTITY (Bottes) Graph Input Tool Market for Vodka Quantity (Bottles) Demand Price (Dollars per bottle) Tax (Dollars per bottle) 40 60.00 20.00 Supply Price (Dollars per bottle) 40.00
Suppose the government imposes a $20-per-bottle tax on suppliers.
At this tax amount, the equilibrium quantity of vodka is
1250
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.
1125
TAX REVENUE (Dollar)
1000-
875
750
625
500
X75
10
75
TAX (Dollars per bote)
bottles, and the government collects S
100
in tax revenue.
Later Curve
Transcribed Image Text:Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of vodka is 1250 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. 1125 TAX REVENUE (Dollar) 1000- 875 750 625 500 X75 10 75 TAX (Dollars per bote) bottles, and the government collects S 100 in tax revenue. Later Curve
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