Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + LMS Integrated Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305242500
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 8, Problem 2PA
Subpart (a):
To determine
The impact of tax on the tax revenue.
Subpart (b):
To determine
The impact of tax on the tax revenue.
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22. If the government decide to increase taxes on sugar, who do you think will carry the burden of taxation? Please justify your answer and explain.
a. What is the deadweight loss of a tax?
b. How is the deadweight loss of a tax related to the
elasticity of the demand and supply curves?
c. Consider a tax on the producers in a market. By
using supply and demand curves, show the
consumer surplus, producer surplus, the equilibrium
price and quantity traded before tax. Now show the
consumer surplus, producer surplus,
equilibrium price and quantity traded after tax. What
happens to consumer surplus, producer surplus,
equilibrium price and quantity traded after tax?
Finally make sure to show the revenue of the tax and
the deadweight loss associated with the tax.
Suppose that the government imposes a tax on heating oil.Would the deadweight loss of this tax likely be greater in the first year after it is imposed or in the fifth year? Would the tax revenue collected from this tax likely be greater in the first year after it is imposed or in the fifth year?
A.
The deadweight loss and tax revenue would both be greater in the first year than the fifth.
B.
The deadweight loss would be greater in the first year than the fifth, but the tax revenue would be greater in the fifth year than the first.
C.
The deadweight loss would be greater in the fifth year than the first, but the tax revenue would be greater in the first year than the fifth.
D.
The deadweight loss and tax revenue would both be greater in the fifth year.
Chapter 8 Solutions
Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + LMS Integrated Aplia, 1 term Printed Access Card
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Similar questions
- Seeing a golden opportunity to increase its revenue, assume the City of Boston has decided to levy a per ticket tax of $5, to be paid by the ticket buyer. Boston sports fans, a famously civic-minded lot, dutifully send in the $5 per ticket. Draw a well-labeled graph showing the impact of the tax. On whom does the tax burden fallbuyers, sellers, or both? Why?arrow_forwardWhen evaluating the size of the deadweight loss due to a tax, what do we know? Select one: a. the smaller the elasticities of supply and demand, the greater the deadweight loss b. the greater the elasticities of supply and demand, the greater the deadweight loss c. the smaller the decrease in both quantity demanded and quantity supplied, the greater the deadweight loss d. the greater the elasticities of supply and demand, the smaller the deadweight lossarrow_forwardPlease answer the all questions please..arrow_forward
- In a market without taxes, consumer surplus is $100, and producer surplus is $200. After the government enacts a tax, consumer surplus is $70, producer surplus is $150, and tax revenue is $20. What is the deadweight loss of the government intervention? Group of answer choices E. $80 A. $20 C. $50 D. $60 B. $3arrow_forwardTaxes and Subsidies: End of Chapter Problem Let's see if we can formulate any real laws about the economics of taxation. Which of the following must be true? More than one may be true. If there is a tax: Must occur a. The equilibrium quantity must fall, and the price that buyers pay must rise. b. The equilibrium quantity must rise, and the price that sellers pay must rise. Will not occur c. The equilibrium quantity must fall, and the price that sellers receive must fall. Answer Bank d. The equilibrium quantity must rise, and the price that buyers receive must fall.arrow_forwardTAX GRAPH On a graph, show the effect of a per unit tax on SELLERS of cigarettes. (This requires you to think about the shape of the demand curve for cigarettes. You can assume a sort of neutral supply curve. Indicate the change in price and quantity from the tax. The consumer and producer surplus after the tax, the tax incidence on buyers and sellers and the deadweight losss. Who pays more of this tax? [Note: In the book they talk about the effect of cigarette taxes on OTHER states. That's not what I'm talking about here. Just tell me about the market on which the tax is imposed.]arrow_forward
- As price elasticity of demand increases, the burden of a tax gets _______; as price elasticity of supply increases, the burden of a tax gets _________. (Here, you can read "bigger" as "heavier" and "smaller" as "lighter" if that helps.) bigger; bigger smaller; smaller bigger; smaller smaller; biggerarrow_forward. Suppose that a central government levies a new tax called “garbage tax” on all households of the country. Evaluate this new tax in terms of the tax design criteria.arrow_forwardB1. 1. For each of the markets and taxes described below, draw a generic graph, fully labelled, that reflects the market’s elasticities of supply and demand use the wedge method to show in a general way the levels of the Pb and Ps that the tax causes (or would cause) on the market explain which side of the market bears (or would bear) most of the burden of the tax and which side “escapes.” (a) The Michigan market for cigarettes, where demand is highly inelastic and supply is highly elastic, and where before tax the equilibrium price is $5.50 per pack. A combined federal and state tax of $3 per pack is imposed. (b) The market for restaurant meals on 8th Street in Holland, where supply is inelastic and demand is elastic, the current equilibrium price is $18, and the City of Holland is considering a $7 tax per meal served. (c) The US market for domestic air travel, where ES and |ED| = 1.5, and average fares in the absence of taxes are $265. A $70 federal tax is imposed. (d) For…arrow_forward
- Identify whether the statements about the economics of taxes are true or false. a. An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions. b. When demand is elastic and supply is inelastic, the burden of a tax falls mainly on consumers. c. When demand is inelastic and supply is elastic, the burden of a tax falls mainly on producers. d. The incidence of a tax is determined by which group – buyers or sellers – must actually pay the govarrow_forward1. The monthly demand function is p, = 26,000,000 qand the supply function %3D before taxation is ps = 1,000,000 + 3,750q, where q is in millions and p is in dollars. a. Find the equilibrium point. What tax per item will maximize the total tax revenue? What is the maximum revenue from the tax? How many items will have to be sold to get the maximum revenue from the tax? b. С. What is the equilibrium point after the tax? Graph the three functions, the demand function, the supply function before the tax and the supply function after the tax. d.arrow_forwardOn a graph, show the effect of a per unit tax on BUYERS of cigarettes. (This requires you to think about the shape of the demand curve for cigarettes. You can assume a sort of neutral supply curve. Indicate the change in price and quantity from the tax. The consumer and producer surplus after the tax, the tax incidence on buyers and sellers and the deadweight loss. Who pays more of this tax? [Note: In the book they talk about the effect of cigarette taxes on OTHER states. That's not what I'm talking about here. Just tell me about the market on which the tax is imposed.]arrow_forward
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