Answered: If the government wants to impose the…

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

PLEASE ANSWER THE GRAPHS AS WELL AS THE BOLDED QUESTIONS AND TABLES.

The government is considering levying a tax of $60 per unit on suppliers of either concert tickets or bus passes. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for concert tickets is shown by DCDC (on the first graph), and the demand for bus passes is shown by DBDB (on the second graph).

Suppose the government taxes concert tickets. The following graph shows the annual supply and demand for this good. It also shows the supply curve (S+TaxS+Tax) shifted up by the amount of the proposed tax ($60 per ticket).

On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for concert tickets. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.

FIRST PICTURE GOES HERE

On the following graph, do the same thing that you did on the graph for concert tickets. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for bus passes. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.

SECOND PICTURE GOES HERE

If the government wants to impose the tax that is more efficient, it should tax CONCERT OR BUS PASSES . (Hint: Assume the administrative burdens of the two tax laws are equal.)

Concert Tickets Market
120
110
Supply
S+Tax
100
Tax Revenue
90
80
Deadweight Loss
70
60
Dc
50
40
30
20
10
50
100
150 200 250 300 350 400 450 500 550 600
QUANTITY (Tickets)
Instead, suppose the government taxes bus passes. The following graph shows the annual supply and demand for this good, as well as the supply
curve shifted up by the amount of the proposed tax ($60 per pass).
On the following graph, do the same thing that you did on the graph for concert tickets. Use the green rectangle (triangle symbols) to shade the area
that represents tax revenue for bus passes. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss
associated with the tax.
PRICE (Dollars per ticket)

Bus Passes Market
120
110
Supply
S+Tax
100
Tax Revenue
90
80
Deadweight Loss
70
60
50
40
30
20
10
50
100
150
200
250 300 350 400
450 500
550
600
QUANTITY (Passes)
Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals.
Tax Revenue
Deadweight Loss
If the Government Taxes...
(Dollars)
(Dollars)
Concert tickets at $60 per ticket
Bus passes at $60 per pass
PRICE (Dollars per pass)

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