The government is considering levying a tax of $80 per unit on suppliers of either leather...
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The government is considering levying a tax of $80 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 D (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 ($80 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. PRICE (Dollars per jacket) 240 Leather Jackets Market 220 S+Tax Supply 200 Tax Revenue 180 160 140 120 100 80 60 40 20 + 0 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) Deadweight Loss 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 ($80 per phone). On the following graph, do the same thing that you did 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. PRICE (Dollars per phone) Smartphones Market 220 S+Tax Supply 200 Tax Revenue 240 180 160 140 120 100 40 20 38 8 8 8 8 & 8 - 0 0 Ds 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) Deadweight Loss Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. If the Government Taxes... Leather Jackets at $80 per jacket Smartphones at $80 per phone Tax Revenue (Dollars) Deadweight Loss (Dollars) 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 because, all else held constant, taxing a good with a relatively elastic demand generates larger tax revenue and smaller deadweight loss. The government is considering levying a tax of $80 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 D (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 ($80 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. PRICE (Dollars per jacket) 240 Leather Jackets Market 220 S+Tax Supply 200 Tax Revenue 180 160 140 120 100 80 60 40 20 + 0 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) Deadweight Loss 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 ($80 per phone). On the following graph, do the same thing that you did 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. PRICE (Dollars per phone) Smartphones Market 220 S+Tax Supply 200 Tax Revenue 240 180 160 140 120 100 40 20 38 8 8 8 8 & 8 - 0 0 Ds 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) Deadweight Loss Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. If the Government Taxes... Leather Jackets at $80 per jacket Smartphones at $80 per phone Tax Revenue (Dollars) Deadweight Loss (Dollars) 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 because, all else held constant, taxing a good with a relatively elastic demand generates larger tax revenue and smaller deadweight loss.
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