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 cigarettes, 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 Tool Market for Cigarettes 20 I Quantity (Packs) 56 18 Supply Demand Price (Dollars per pack) Supply Price (Dollars per pack) 16 12.00 8.00 14 Таx (Dollars per pack) 4.00 12 10 8 Demand 4 2 14 28 42 56 70 84 98 112 126 140 QUANTITY (Packs) Suppose the government imposes a $4-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is packs, and the government collects $ in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $4, $8, $10, $12, $16, or $20 per pack. (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. PRICE (Dollars per pack)
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 cigarettes, 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 Tool Market for Cigarettes 20 I Quantity (Packs) 56 18 Supply Demand Price (Dollars per pack) Supply Price (Dollars per pack) 16 12.00 8.00 14 Таx (Dollars per pack) 4.00 12 10 8 Demand 4 2 14 28 42 56 70 84 98 112 126 140 QUANTITY (Packs) Suppose the government imposes a $4-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is packs, and the government collects $ in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $4, $8, $10, $12, $16, or $20 per pack. (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. PRICE (Dollars per pack)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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 cigarettes, 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 Tool
Market for Cigarettes
20
I Quantity
(Packs)
56
18
Supply
Demand Price
(Dollars per pack)
Supply Price
(Dollars per pack)
16
12.00
8.00
14
Таx
(Dollars per pack)
4.00
12
10
8
Demand
4
2
14
28
42 56
70
84
98 112 126 140
QUANTITY (Packs)
Suppose the government imposes a $4-per-pack tax on suppliers.
At this tax amount, the equilibrium quantity of cigarettes is
packs, and the government collects $
in tax revenue.
Now calculate the government's tax revenue if it sets a tax of $0, $4, $8, $10, $12, $16, or $20 per pack. (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.
PRICE (Dollars per pack)
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