Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of gin is ( ] bottles, and the government collects 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 quant 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.
Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of gin is ( ] bottles, and the government collects 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 quant 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. The Laffer curve
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 gin, 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 Gin
100
I Quantity
(Bottles
Demand Price
(Dollars per bottle)
90
Supply
56
80
Şupply Price
(Dollars per bottle)
60.00
40.00
70
Tax
Dollars per bottle)
20.00
* 60
50
40
30
Demand
20
10
0
14 28 42 56 70 84 98 112 126 140
QUANTITY (Bottles)
Suppose the government imposes a $20-per-bottle tax on suppliers.
At this tax amount, the equilibrium quantity of gin 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 quant
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.
(?
2240
A
2016
Laffer Curve
1792
1568
1344
1120 +
W 896
672
448
224
10
20
30
40 50 60
70
80
90
100
TAX (Dollars per bottle)
Suppose the government is currently imposing a $40-per-bottle tax on gin.
True or False: The government can raise its tax revenue by increasing the per-unit tax on gin.
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.)
PRICE (Dollars per bottle)
AX REVENUE (Dollars
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