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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 champagne, 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. Supply K 10 20 30 40 50 60 70 80 90 199 QUANTITY (C) PRICE (Dollars perc) Suppose the government imposes a $10-per-case tax on suppliers. At this tax amount, the equilibrium quantity of champagne is TAX REVENUE (D) 000 700 600 500 400 300 Now calculate the government's tax revenue if it sets a tax of 50, $10, $20, $25, $30, $40, or $50 per case. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity"feld 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. 300 100 4 4 S 10 Graph Input Tool Market for Champagne Quantity Demand Price (Dollars per case) 30 25 TAX Dolars per c Tax (Dolars per case) 40 30.00 10.00 La Cur Supply Price (Daparca) cases, and the govemment collects 20.00 in tax revenue.

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 champagne, 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. Supply K 10 20 30 40 50 60 70 80 90 199 QUANTITY (C) PRICE (Dollars perc) Suppose the government imposes a $10-per-case tax on suppliers. At this tax amount, the equilibrium quantity of champagne is TAX REVENUE (D) 000 700 600 500 400 300 Now calculate the government's tax revenue if it sets a tax of 50, $10, $20, $25, $30, $40, or $50 per case. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity"feld 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. 300 100 4 4 S 10 Graph Input Tool Market for Champagne Quantity Demand Price (Dollars per case) 30 25 TAX Dolars per c Tax (Dolars per case) 40 30.00 10.00 La Cur Supply Price (Daparca) cases, and the govemment collects 20.00 in tax revenue.

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: The Design Of The Tax System
Section: Chapter Questions
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4. The Laffer curve 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 champagne, 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. BRUNENSE 8 5 1000 Suppose the government imposes a $10-per-case tax on suppliers. At this tax amount, the equilibrium quantity of champagne is - 700 400 500 430 300 200 100 1000 Now calculate the government's tax revenue if it sets a tax of $0, $10, $20, $25, $30, $40, or $50 per case. (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 @ 900 700 000 @ 10 20 30 40 50 60 70 80 90 100 QUANTITY (C) 500 Supply 400 Demand 1510 300 100 0 Suppose the government is currently imposing a $15-per-case tax on champagne 15 30 TAX (Dollars per ca S 10 True or False: The government can raise its tax revenue by increasing the per-unit tax on champagne. O True O False 15 20 40 Graph Input Tool Market for Champagne Quantity (Cases) Consider the deadweight loss generated in each of the following cases: no tax, a tax of $20 per case, and a tax of $40 per case. 50 TAX (Dolars per ca Demand Price (Dollars per case) As the tax per case increases, deadweight loss Tax (Dollars per case) 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 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.) 40 A Lafer Curve cases, and the government collects 40 30.00 10.00 Deadweight Lo Supply Price (Dollars par case) (?) (?) 20.00 Grade It Now in tax revenue. Save & Continue Continue without saving
Transcribed Image Text:4. The Laffer curve 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 champagne, 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. BRUNENSE 8 5 1000 Suppose the government imposes a $10-per-case tax on suppliers. At this tax amount, the equilibrium quantity of champagne is - 700 400 500 430 300 200 100 1000 Now calculate the government's tax revenue if it sets a tax of $0, $10, $20, $25, $30, $40, or $50 per case. (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 @ 900 700 000 @ 10 20 30 40 50 60 70 80 90 100 QUANTITY (C) 500 Supply 400 Demand 1510 300 100 0 Suppose the government is currently imposing a $15-per-case tax on champagne 15 30 TAX (Dollars per ca S 10 True or False: The government can raise its tax revenue by increasing the per-unit tax on champagne. O True O False 15 20 40 Graph Input Tool Market for Champagne Quantity (Cases) Consider the deadweight loss generated in each of the following cases: no tax, a tax of $20 per case, and a tax of $40 per case. 50 TAX (Dolars per ca Demand Price (Dollars per case) As the tax per case increases, deadweight loss Tax (Dollars per case) 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 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.) 40 A Lafer Curve cases, and the government collects 40 30.00 10.00 Deadweight Lo Supply Price (Dollars par case) (?) (?) 20.00 Grade It Now in tax revenue. Save & Continue Continue without saving
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