Assume that the production technology is such that each unit of output requires one unit of labor and that the government has a revenue requirement of one unit of labor. Also assume that there is a single consumer. a. Using a diagram, describe how the optimal tax on the consumption good is determined.

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Laffer Curve Analysis

In terms of economics, the Laffer curve was popular among those economists who were or who belonged to the supply side of the economic peripheral.  This concept was popularized by the famous supply-side economist known as Arthur Laffer. This curve illustrated the relationship between the tax rates and government revenue. It is already known that the tax which the public or individuals residing in an economy bear is the revenue or income of the government with the help of which the government does all the necessary works in the society, which is beneficial for the economy.