Question
Answered step-by-stepAsked by MateBuffalo49 on coursehero.com
. The government is considering levying a tax of $100 per unit on...
Image transcription text
The government is considering levying a tax of $100 per unit on suppliers of either leather jackets or smartphones. The supply curve for each of these
two goods is identical, as you can see on each of the following graphs. The demand for leather jackets is shown by DL (on the first graph), and the
demand for smartphones is shown by Ds (on the second graph).
Suppose the government taxes leather jackets. The following graph shows the annual supply and demand for this good. It also shows the supply curve (
S + Tax) shifted up by the amount of the proposed tax ($100 per jacket).
On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for leather jackets. Then use the
black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
Leather Jackets Market
240
220
Supply
200
S+Tax
Tax Revenue
180
160
Deadweight Loss
140
PRICE (Dollars per jacket)
120
100
8
60
40
20
0
50 100 150 200 250 300 350 400 450 500 550 600
QUANTITY (Jackets)
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Instead, suppose the government taxes smartphones. The following graph shows the annual supply and demand for this good, as well as the supply curve shifted up by the amount of the proposed tax ($100 per phone). On the following graph, do for smartphones the same thing you did previously on the graph for leather jackets. Use the green rectangle (triangle
symbols) to shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. / _\
\Z/ Smartphones Market 240
220 Supply 200 S+Tax Tax Revenue 180 ii 160 Deadweight L055
140 120
100 80 PRICE (Dollars per phone) 60
40
20 D 0 1—0—0—0—0—0—0—0—0—4—0—0—1
0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones)
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Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss If the Government Taxes... (Dollars) (Dollars) Leather jackets at $100 perjacket
Smartphones at $100 per phone Suppose the government wants to tax the good that will generate more tax revenue at a lower welfare cost. In this case, it should tax
V because, all else held constant, taxing a good with a relatively V elastic demand generates larger tax revenue and smaller deadweight loss.
Answer & Explanation
Solved by verified expertAnswered by Nellybella on coursehero.com
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