Instead, suppose the government taxes smartphones. 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 ($120 per phone). On the following graph, do for smartphones the same thing you did previously on the graph for leather jackets. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Smartphones Market 240 220 S+Tax Supply 200 Tax Revenue 180 160 Deadweight Loss 140 120 100 80 60 40 20 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss (Dollars) If the Government Taxes... (Dollars) Leather jackets at $120 per jacket Smartphones at $120 per phone Suppose the government wants to tax the good that will generate more tax revenue at a lower welfare cost. In this case, it should tax a good with a relatively deadweight loss. ▼ because, all else held constant, taxing v elastic demand generates larger tax revenue and smaller PRICE (Dollars per phone)
Instead, suppose the government taxes smartphones. 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 ($120 per phone). On the following graph, do for smartphones the same thing you did previously on the graph for leather jackets. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Smartphones Market 240 220 S+Tax Supply 200 Tax Revenue 180 160 Deadweight Loss 140 120 100 80 60 40 20 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss (Dollars) If the Government Taxes... (Dollars) Leather jackets at $120 per jacket Smartphones at $120 per phone Suppose the government wants to tax the good that will generate more tax revenue at a lower welfare cost. In this case, it should tax a good with a relatively deadweight loss. ▼ because, all else held constant, taxing v elastic demand generates larger tax revenue and smaller PRICE (Dollars per phone)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Instead, suppose the government taxes smartphones. 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
($120 per phone).
On the following graph, do for smartphones the same thing you did previously on the graph for
leather jackets. Use the green rectangle (triangle symbols) to shade the area that represents tax
revenue for smartphones. Then, use the black triangle (plus symbols) to shade the area that
represents the deadweight loss associated with the tax.
Smartphones Market
240
220
S+Tax
Supply
200
Tax Revenue
180
160
Deadweight Loss
140
120
100
80
60
40
20
50
100 150 200 250 300 350 400 450 500 550 600
QUANTITY (Phones)
Complete the following table with the tax revenue collected and deadweight loss caused by each of
the tax proposals.
Tax Revenue Deadweight Loss
(Dollars)
If the Government Taxes...
(Dollars)
Leather jackets at $120 per jacket
Smartphones at $120 per phone
Suppose the government wants to tax the good that will generate more tax revenue at a lower
welfare cost. In this case, it should tax
a good with a relatively
deadweight loss.
▼ because, all else held constant, taxing
v elastic demand generates larger tax revenue and smaller
PRICE (Dollars per phone)
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