Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (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.
Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
100%
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 rum, 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.
Transcribed Image Text:Suppose the government is currently imposing a $60-per-bottle tax on rum.
True or False: The government can raise its tax revenue by decreasing the per-unit tax on rum.
O True
O False
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
1800
1200
800
400
10
20
30
40
50
60
70
80
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100
TAX (Dollars per bottle)
As the tax per bottle increases, deadweight loss
DEADWEIGHT LOSS (Dollars)
Transcribed Image Text:Market for Rum
100
90
Quantity
80
Supply
Bottles
80
Demand Price
(Dollars per bottle)
Supply Price
(Dollars per bottle)
60.00
40.00
70
Таx
20.00
60
(Dollars per bottle)
50
40
30
Demand
20
10
O 20
20 40 80 80 100 120 140 160 180 200
QUANTITY (Bottles)
Suppose the government imposes a $20-per-bottle tax on suppliers.
At this tax amount, the equilibrium quantity of rum is
bottles, and the government collects S
in tax revenue.
Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (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.
(?
4000
3600
Laffer Curve
3200
2800
2400
2000
1600
1200
800
400
10
20
30
40
50
60
70
80
90
100
TAX (Dollars per bottle)
TAX REVENUE (Dollars)
PRICE (Dollars per bottle)
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