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 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 ($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 Supply 220 200 S+Tax Tax Revenue 180 160 Deadweight Loss 140 120 100 DL 40 20 0 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) 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 PRICE (Dollars per jacket) 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. ? Smartphones Market 240 Supply 220 S+Tax 200 Tax Revenue 180 160 Deadweight Loss 140 120 100 80 60 40 Ds 20 0 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) 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 per jacket 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 because, all else held constant, taxing a good with a relatively elastic demand generates larger tax revenue and smaller deadweiaht loss. PRICE (Dollars per phone)

Question
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 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 ($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
Supply
220
200
S+Tax
Tax Revenue
180
160
Deadweight Loss
140
120
100
DL
40
20
0
0
50 100
150 200 250 300 350 400 450 500 550 600
QUANTITY (Jackets)
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
PRICE (Dollars per jacket)

Image Transcription

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 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 ($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 Supply 220 200 S+Tax Tax Revenue 180 160 Deadweight Loss 140 120 100 DL 40 20 0 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Jackets) 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 PRICE (Dollars per jacket)

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.
?
Smartphones Market
240
Supply
220
S+Tax
200
Tax Revenue
180
160
Deadweight Loss
140
120
100
80
60
40
Ds
20
0
0
50
100 150 200 250 300 350 400 450 500 550 600
QUANTITY (Phones)
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 per jacket
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
because, all else held constant, taxing a good with a relatively
elastic demand generates larger tax revenue and
smaller deadweiaht loss.
PRICE (Dollars per phone)

Image Transcription

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. ? Smartphones Market 240 Supply 220 S+Tax 200 Tax Revenue 180 160 Deadweight Loss 140 120 100 80 60 40 Ds 20 0 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) 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 per jacket 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 because, all else held constant, taxing a good with a relatively elastic demand generates larger tax revenue and smaller deadweiaht loss. PRICE (Dollars per phone)

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