The effect of tax on economic efficiency.

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Answer 1

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

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Short Description Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 800 billion dollars with an increment of 40 billion dollars, and the y-axis is scaled from 30 to 150 units with an increment of 5 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (160, 70)Point 2 at (720, 140)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (80, 110)Point 2 at (640, 40)A vertical Long-run Aggregate Supply, LRAS with two endpoints:Point 1 at (400, 145)Point 2 at (400, 30)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (720, 60)Point 2 at (160, 130)Two Reference Points:Lines AS, AD, and LRAS intersect at (400, 100)Lines AS and AD1 intersect at (280, 85) a. How much does aggregate demand need to change to restore the…

Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 1000 billion dollars with an increment of 50 billion dollars, and the y-axis is scaled from 0 to 180 units with an increment of 10 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (200, 40)Point 2 at (800, 160)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (200, 160)Point 2 at (800, 40)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (350, 170)Point 2 at (900, 60)A vertical Long-run Aggregate Supply, LRAS line with two endpoints:Point 1 at (500, 170)Point 2 at (500, 0)Two Reference Points:Lines AS and AD1 intersect at (600, 120)Lines AS, AD, and LRAS intersect at (500, 100) a. How much does aggregate demand need to change to restore the…

a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

Answer 2

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Answer 6

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Answer 7

Chapter 4, Problem 1TC

To determine

The effect of tax on economic efficiency.

Answer 8

Expert Solution & Answer

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other.

In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax.

Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

MyLab Economics with Pearson eText -- Access Card -- for Microeconomics, Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Answer 12

Ch. 4.A - Prob. 1RQ Ch. 4.A - Prob. 2RQ Ch. 4.A - Prob. 3RQ Ch. 4.A - Why would economists use the term deadweight loss...Ch. 4.A - Prob. 5PA Ch. 4.A - Prob. 6PA Ch. 4.A - Prob. 7PA Ch. 4.A - Prob. 8PA Ch. 4.A - Prob. 9PA Ch. 4 - Prob. 1TC

The effect of tax on economic efficiency.

The effect of tax on economic efficiency.

Explanation of Solution

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