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3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 Dr (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 ?

3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 Dr (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 ?

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
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3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 D₁ (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. PRICE (Dollars per jacket) 240 220 200 180 160 140 120 100 80 60 40 20 0 0 Leather Jackets Market S+Tax Supply DL 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) Tax Revenue 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 ($100 per phone).
Transcribed Image Text:3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 D₁ (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. PRICE (Dollars per jacket) 240 220 200 180 160 140 120 100 80 60 40 20 0 0 Leather Jackets Market S+Tax Supply DL 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) Tax Revenue 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 ($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. PRICE (Dollars per phone) 240 220 200 180 160 140 120 100 80 60 40 20 0 Smartphones Market S+Tax Supply 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) If the Government Taxes... Leather jackets at $100 per jacket Smartphones at $100 per phone Ds smaller deadweight loss. Tax Revenue Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Deadweight Loss Tax Revenue Deadweight Loss (Dollars) (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
Transcribed Image Text: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. PRICE (Dollars per phone) 240 220 200 180 160 140 120 100 80 60 40 20 0 Smartphones Market S+Tax Supply 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) If the Government Taxes... Leather jackets at $100 per jacket Smartphones at $100 per phone Ds smaller deadweight loss. Tax Revenue Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Deadweight Loss Tax Revenue Deadweight Loss (Dollars) (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
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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 $100 per jacket Smartphones at $100 per phone Tax Revenue (Dollars) smaller deadweight loss. 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
Transcribed Image Text: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 $100 per jacket Smartphones at $100 per phone Tax Revenue (Dollars) smaller deadweight loss. 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
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