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 champagne, 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)504540353025201510500SupplyDemand8 16 24 32 40 48 56 64 72 80QUANTITY (Cases)Graph Input ToolSuppose the government imposes a $10-per-case tax on suppliers.At this tax amount, the equilibrium quantity of champagne isMarket for ChampagneQuantity(Cases)Demand Price(Dollars per case)Tax(Dollars per case)3230.0010.00Supply Price(Dollars per case)cases, and the government collects $20.00in tax revenue. Consider the deadweight loss generated in each of the following cases: no tax, a tax of $20 per case, and a tax of $40 per case.On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of atriangle is equal to X Base × Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax andthe height is the reduction in quantity caused by the tax.)DEADWEIGHT LOSS (Dollars)800720640560480400320240160800051015 20 25 30TAX (Dollars per case)35As the tax per case increases, deadweight loss404550Deadweight Loss

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As the tax per case increases, deadweight loss

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

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 champagne, 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
0
Supply
Demand
8 16 24 32 40 48 56 64 72 80
QUANTITY (Cases)
Graph Input Tool
Suppose the government imposes a $10-per-case tax on suppliers.
At this tax amount, the equilibrium quantity of champagne is
Market for Champagne
Quantity
(Cases)
Demand Price
(Dollars per case)
Tax
(Dollars per case)
32
30.00
10.00
Supply Price
(Dollars per case)
cases, and the government collects $
20.00
in tax revenue.

Consider the deadweight loss generated in each of the following cases: no tax, a tax of $20 per case, and a tax of $40 per case.
On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of a
triangle is equal to X Base × 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.)
DEADWEIGHT LOSS (Dollars)
800
720
640
560
480
400
320
240
160
80
0
0
5
10
15 20 25 30
TAX (Dollars per case)
35
As the tax per case increases, deadweight loss
40
45
50
Deadweight Loss

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