Question
Answered step-by-stepAsked by MateBuffalo49 on coursehero.com
. Government—imposed taxes cause reductions in the activity...
Image transcription text
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 vodka, 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.
Image transcription text
Graph Input Tool
100
Market for Vodka
90
Supply
Quantity
72
80
(Bottles)
Demand Price
60.00
Supply Price
40.00
70
(Dollars per bottle)
(Dollars per bottle)
60
Tax
20.00
(Dollars per bottle)
50
PRICE (Dollars per bottle)
40
30
Demand
20
10
0
0
18 36 54 72 90 108 126 144 162 180
QUANTITY (Bottles)
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Suppose the government imposes a $20—per—bottle tax on suppliers. At this tax amount, the equilibrium quantity of vodka 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 quantity
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.
Image transcription text
Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. 2880
A 2592 2304 Laffer Curve N
o
a
m _'
'4
N
m 1440 1152 TAX REVENUE (Dollars) 864
576
288
0 | | | | l l l l l l 0 10 20 30 40 50 60 70 80 90 100
TAX (Dollars per bottle)
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Suppose the government is currently imposing a $20—per—bottle tax on vodka. True or False: The government can raise its tax revenue by increasing the per-unit tax on vodka. True 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.)
Image transcription text
3600
3240
Deadweight Loss
2880
2520
2160
1800
DEADWEIGHT LOSS (Dollars)
1440
1080
720
360
0
0
10
20
30
40
50
60
70
80
90
100
TAX (Dollars per bottle)
As the tax per bottle increases, deadweight loss
Answer & Explanation
Solved by verified expertAnswered by SargentLeopardPerson273 on coursehero.com
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