This problem uses the 'wedge' approach in a supply and demand diagram to show the effect of a tax.The government is considering levying a tax of €20 per unit on either carbon emissions or car batteries. The supply curve for each of these goods is identical and is shown by S. The demand for carbon emissions is shown by D1, and the demand for car batteries is shown by D2.Assume the government were to tax carbon emissions. The following graph shows the supply and demand for this good. The graph also shows a wedge representing the tax.Use the tan triangle (dash symbols) to shade the area that represents the deadweight loss associated with the tax. 6050Deadweight Loss4030D1Таx2010100200300400500600QUANTITY (Cubic tonnes)Assume the government were to tax car batteries. The following graph shows the supply and demand for this good, as well as the tax wedge of €20per unit. Again, use the tan triangle (dash symbols) to shade the area that represents the deadweight loss associated with the tax.PRICE (Euros per cubic tonne) 6050Deadweight LossТах10D2100200300400500600QUANTITY (Batteries)A tax on carbon emissions has a deadweight loss of. A tax on car batteries has a deadweight loss of(Hint: You can seethe areas of the objects you drew by placing your mouse over them.) Therefore, if the government wants to minimize deadweight loss, it should taxThis is because taxes on goods with relatively ▼ price elastic demand generate larger deadweight loss.PRICE (Euros per batery)

1. Deadweight Loss: It is a cost to society generally created because of the presence of market…

Answered: This problem uses the 'wedge' approach…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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This problem uses the 'wedge' approach in a supply and demand diagram to show the effect of a tax. The government is considering levying a tax of €20 per unit on either carbon emissions or car batteries. The supply curve for each of these goods is identical and is shown by S. The demand for carbon emissions is shown by D1, and the demand for car batteries is shown by D2. Assume the government were to tax carbon emissions. The following graph shows the supply and demand for this good. The graph also shows a wedge representing the tax. Use the tan triangle (dash symbols) to shade the area that represents the deadweight loss associated with the tax.

60
50
Deadweight Loss
40
30
D1
Таx
20
10
100
200
300
400
500
600
QUANTITY (Cubic tonnes)
Assume the government were to tax car batteries. The following graph shows the supply and demand for this good, as well as the tax wedge of €20
per unit. Again, use the tan triangle (dash symbols) to shade the area that represents the deadweight loss associated with the tax.
PRICE (Euros per cubic tonne)

60
50
Deadweight Loss
Тах
10
D2
100
200
300
400
500
600
QUANTITY (Batteries)
A tax on carbon emissions has a deadweight loss of
. A tax on car batteries has a deadweight loss of
(Hint: You can see
the areas of the objects you drew by placing your mouse over them.) Therefore, if the government wants to minimize deadweight loss, it should tax
This is because taxes on goods with relatively ▼ price elastic demand generate larger deadweight loss.
PRICE (Euros per batery)

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