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. PRICE (Dollars per pack) 10 9 8 CO 10 2 1 0 Supply Demand 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Packs) Graph Input Tool Market for Cigarettes Quantity (Packs) Suppose the government imposes a $2-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is Demand Price (Dollars per pack) Tax (Dollars per pack) 50 5.00 0.00 Supply Price (Dollars per pack) 50 packs, and the government collects ? 5.00 $100 in tax revenue.
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. PRICE (Dollars per pack) 10 9 8 CO 10 2 1 0 Supply Demand 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Packs) Graph Input Tool Market for Cigarettes Quantity (Packs) Suppose the government imposes a $2-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is Demand Price (Dollars per pack) Tax (Dollars per pack) 50 5.00 0.00 Supply Price (Dollars per pack) 50 packs, and the government collects ? 5.00 $100 in tax revenue.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Consider the deadweight loss generated in each of the following cases: no tax, a tax of $4 per pack, and a tax of $8 per pack.
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.)
DEADWEIGHT LOSS (Dollars)
200
180
160
140
120
100
80
60
40
20
0
0
1
2
3
6
4 5
TAX (Dollars per pack)
7
As the tax per pack increases, deadweight loss
8
9
10
Deadweight Loss
(?)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb627aad4-002a-4d00-a2a9-d9e3f533b4eb%2Fa7033883-1d28-40cb-860a-5d006fbfa9df%2Frnhtkg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider the deadweight loss generated in each of the following cases: no tax, a tax of $4 per pack, and a tax of $8 per pack.
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.)
DEADWEIGHT LOSS (Dollars)
200
180
160
140
120
100
80
60
40
20
0
0
1
2
3
6
4 5
TAX (Dollars per pack)
7
As the tax per pack increases, deadweight loss
8
9
10
Deadweight Loss
(?)
![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.
PRICE (Dollars per pack)
10
9
TAX REVENUE (Dollars)
Suppose the government imposes a $2-per-pack tax on suppliers.
At this tax amount, the equilibrium quantity of cigarettes is
200
180
160
140
120
100
80
60
40
20
0 10 20 30 40 50 60 70 80 90 100
QUANTITY (Packs)
0
Now calculate the government's tax revenue if it sets a tax of $0, $2, $4, $5, $6, $8, or $10 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.
0
Supply
1
Demand
2
O True
False
3
5 6 7
TAX (Dollars per pack)
Graph Input Tool
Market for Cigarettes
Quantity
(Packs)
8
9 10
Demand Price
(Dollars per pack)
Tax
(Dollars per pack)
Suppose the government is currently imposing a $3-per-pack tax on cigarettes.
Laffer Curve
50
5.00
50 packs, and the government collects
(?)
0.00
True or False: The government can raise its tax revenue by increasing the per-unit tax on cigarettes.
Supply Price
(Dollars per pack)
(?)
5.00
$100 in tax revenue.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb627aad4-002a-4d00-a2a9-d9e3f533b4eb%2Fa7033883-1d28-40cb-860a-5d006fbfa9df%2Fsfp18m_processed.jpeg&w=3840&q=75)
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.
PRICE (Dollars per pack)
10
9
TAX REVENUE (Dollars)
Suppose the government imposes a $2-per-pack tax on suppliers.
At this tax amount, the equilibrium quantity of cigarettes is
200
180
160
140
120
100
80
60
40
20
0 10 20 30 40 50 60 70 80 90 100
QUANTITY (Packs)
0
Now calculate the government's tax revenue if it sets a tax of $0, $2, $4, $5, $6, $8, or $10 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.
0
Supply
1
Demand
2
O True
False
3
5 6 7
TAX (Dollars per pack)
Graph Input Tool
Market for Cigarettes
Quantity
(Packs)
8
9 10
Demand Price
(Dollars per pack)
Tax
(Dollars per pack)
Suppose the government is currently imposing a $3-per-pack tax on cigarettes.
Laffer Curve
50
5.00
50 packs, and the government collects
(?)
0.00
True or False: The government can raise its tax revenue by increasing the per-unit tax on cigarettes.
Supply Price
(Dollars per pack)
(?)
5.00
$100 in tax revenue.
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