4. 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 gin, 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.Graph Input ToolMarket for Gin100I Quantity(Bottles)90Supply10180Demand Price(Dollars per bottle)Supply Price(Dollars per bottle)49.5050.5070Таx0.0060(Dollars per bottle)5030Demand201080 100 120 140 160 180 200QUANTITY (Bottles)204060PRICE (Dollars per bottle) Consider the deadweight loss generated in each of the following cases: no tax, a tax of $40 per bottle, and a tax of $80 per bottle.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 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.)40003600Deadweight Loss3200280024002000160012008004000 다102030405060708010006TAX (Dollars per bottle)DEADWEIGHT LOSS (Dollars)

Deadweight loss (DWL) = (1/2) x Tax per Unit x (Pre-tax equilibrium quantity - After tax quantity).…

Consider the deadweight loss generated in each of the following cases: no tax, a tax of $40 per bottle, and a tax of $80 per bottle. 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 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.) 4000 3600 Deadweight Loss 3200 2800 2400 2000 LosS (Dollars)

Consider the deadweight loss generated in each of the following cases: no tax, a tax of $40 per bottle, and a tax of $80 per bottle. 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 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.) 4000 3600 Deadweight Loss 3200 2800 2400 2000 LosS (Dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.
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