ols4. The Laffer curveGovernment-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)22***RES4035Show Transcribed TextAX REVENUE (Dolan)018 27 345 54 63 72 81 00QUANTITY (Cases)Suppose the government imposes a $10-per-case tax on suppliers.At this tax amount, the equilibrium quantity of champagne is [.648576504432360204321414472DSupply.DemandNow calculate the government's tax revenue if it sets a tax of $0, $10, $20, $25, $30, $40, or $50 per case. (Hint: To find the equilibrium quantityafter 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 usingthe 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,?610152025 30 *TAX (Dollars per case)Graph Input ToolMarket for Champagne.Quantity(Cases)4045Demand Price(Dollars per case)50Tax(Dollars per case)g36430.0010.00cases, and the government collects SLaffer CurveSupply Price(Dollars per case)Ⓒ20.00in tax revenue. tudy Tools15ess Tipsss TipsDEADWEIGHT LOSS (Dollars)000810720630540450340279Show Transcribed Text180Suppose the government is currently imposing a $5-per-case tax on champagne.10True or False: The government can raise its tax revenue by increasing the per-unit tax on champagne.6Consider 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 tox Base x 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.)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 tox Base x 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.)ADWEIGHT LOSS (Dollars)O False●True90066104002704010 20 25 30TAX (Dollars per case)Deadweight LossAs the tax per case increases, deadweight lossMacBook Pro>Deadweight Lossincreases and then decreasesĆincreases by a greater and greater amountincreases at a constant rate??Grade It NowSave & Continue

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Answered: At this tax amount, the equilibrium…

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At this tax amount, the equilibrium quantity of champagne is cases, and the government collects 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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Question

ols
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 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)
22***RES
40
35
Show Transcribed Text
AX REVENUE (Dolan)
018 27 345 54 63 72 81 00
QUANTITY (Cases)
Suppose the government imposes a $10-per-case tax on suppliers.
At this tax amount, the equilibrium quantity of champagne is [
.
648
576
504
432
360
204
3214
144
72
D
Supply
.
Demand
Now calculate the government's tax revenue if it sets a tax of $0, $10, $20, $25, $30, $40, or $50 per case. (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,
?
6
10
15
2025 30 *
TAX (Dollars per case)
Graph Input Tool
Market for Champagne.
Quantity
(Cases)
40
45
Demand Price
(Dollars per case)
50
Tax
(Dollars per case)
g
36
4
30.00
10.00
cases, and the government collects S
Laffer Curve
Supply Price
(Dollars per case)
Ⓒ
20.00
in tax revenue.

tudy Tools
15
ess Tips
ss Tips
DEADWEIGHT LOSS (Dollars)
000
810
720
630
540
450
340
279
Show Transcribed Text
180
Suppose the government is currently imposing a $5-per-case tax on champagne.
10
True or False: The government can raise its tax revenue by increasing the per-unit tax on champagne.
6
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 tox Base x 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.)
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 tox Base x 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.)
ADWEIGHT LOSS (Dollars)
O False
●
True
900
6
610
400
270
40
10 20 25 30
TAX (Dollars per case)
Deadweight Loss
As the tax per case increases, deadweight loss
MacBook Pro
>
Deadweight Loss
increases and then decreases
Ć
increases by a greater and greater amount
increases at a constant rate
?
?
Grade It Now
Save & Continue

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Step 1: Introduce the concept of deadweight loss.

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Step 2: Calculate the tax that the government collects.

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Step 3: Plot the laffer curve.

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Step 4: Determine whether tax revenue increases when government increases per unit tax.

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