The figure below shows the market for vacation rental homes before and after the imposition of a 12 percent tax. How can we use the figure to measure the effect the tax has on economic efficiency? Redraw the graph and show the area representing the excess burden created by the implementation of the tax. The market for vacation rental homes before and after the imposition of a 12 percent hotel tax shows that the tax shifts the supply curve up by $120, increasing the price paid by the consumer from $1,000 to $1,060 and decreasing the price received by the homeowner from $1,000 to $940.

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Answer 1

Textbook Question

Chapter 4, Problem 1TC

The figure below shows the market for vacation rental homes before and after the imposition of a 12 percent tax. How can we use the figure to measure the effect the tax has on economic efficiency? Redraw the graph and show the area representing the excess burden created by the implementation of the tax.

Chapter 4, Problem 1TC, The figure below shows the market for vacation rental homes before and after the imposition of a 12

The market for vacation rental homes before and after the imposition of a 12 percent hotel tax shows that the tax shifts the supply curve up by $120, increasing the price paid by the consumer from $1,000 to $1,060 and decreasing the price received by the homeowner from $1,000 to $940.

Expert Solution & Answer

To determine

The effect of tax on economic efficiency.

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

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Use the following graph to answer the question: how much is producer surplus? What is the total value to consumers of consuming the first ten units of this good?

Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax on each gallon of gasoline sold. Suppose they decided to impose the tax on consumers. In the following graph, shows the effect of a $0.50 tax on each gallon of gasoline sold imposed on consumers by shifting the demand or supply curve. DemandSupply01234563.02.52.01.51.00.50Price of Gasoline (Dollars per gallon)Quantity of Gasoline (Thousands of gallons)Demand Supply True or False: The effect of the tax will be the same regardless of whom the tax is imposed on. True False This tax would be more effective in reducing the quantity of gasoline consumed if the demand for gasoline were elastic. True or False: Consumers of gasoline are helped by this tax. True False Workers in the oil industry are by this tax.

Two months ago, on July 1, 2019, the State of Illinois raised gasoline taxes by $.19 (19 cents) per gallon of gas. Now it is past July 2019 and the market has changed. The gasoline tax is in place for all Illinois gasoline stations. In addition to the gasoline tax increase, Illinois dealers on average are noticing that many of their customers are going across the border to buy gasoline in Wisconsin, Iowa, Missouri and Indiana. Not all customers can do this, as they live far from a border. But there is a clear impact on the market for Illinois gasoline producers. Build a graph showing the impact of the Illinois gas tax increase and the shift of some Illinois consumers to border state gas stations, clearly indicating any shifts in the demand and/or supply curves and the resulting equilibrium Price and Quantity. Provide a narrative explaining the shifts. (Both a graph and a narrative are needed for this question)

Answer 2

Textbook Question

Chapter 4, Problem 1TC

The figure below shows the market for vacation rental homes before and after the imposition of a 12 percent tax. How can we use the figure to measure the effect the tax has on economic efficiency? Redraw the graph and show the area representing the excess burden created by the implementation of the tax.

Chapter 4, Problem 1TC, The figure below shows the market for vacation rental homes before and after the imposition of a 12

The market for vacation rental homes before and after the imposition of a 12 percent hotel tax shows that the tax shifts the supply curve up by $120, increasing the price paid by the consumer from $1,000 to $1,060 and decreasing the price received by the homeowner from $1,000 to $940.

Expert Solution & Answer

To determine

The effect of tax on economic efficiency.

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 4, Problem 1TC

The figure below shows the market for vacation rental homes before and after the imposition of a 12 percent tax. How can we use the figure to measure the effect the tax has on economic efficiency? Redraw the graph and show the area representing the excess burden created by the implementation of the tax.

Chapter 4, Problem 1TC, The figure below shows the market for vacation rental homes before and after the imposition of a 12

The market for vacation rental homes before and after the imposition of a 12 percent hotel tax shows that the tax shifts the supply curve up by $120, increasing the price paid by the consumer from $1,000 to $1,060 and decreasing the price received by the homeowner from $1,000 to $940.

Expert Solution & Answer

To determine

The effect of tax on economic efficiency.

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 4, Problem 1TC

The figure below shows the market for vacation rental homes before and after the imposition of a 12 percent tax. How can we use the figure to measure the effect the tax has on economic efficiency? Redraw the graph and show the area representing the excess burden created by the implementation of the tax.

Chapter 4, Problem 1TC, The figure below shows the market for vacation rental homes before and after the imposition of a 12

The market for vacation rental homes before and after the imposition of a 12 percent hotel tax shows that the tax shifts the supply curve up by $120, increasing the price paid by the consumer from $1,000 to $1,060 and decreasing the price received by the homeowner from $1,000 to $940.

Expert Solution & Answer

To determine

The effect of tax on economic efficiency.

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

To determine

The effect of tax on economic efficiency.

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Answer 8

Expert Solution & Answer

To determine

The effect of tax on economic efficiency.

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

To determine

The effect of tax on economic efficiency.

Answer 12

Explanation of Solution

The tax is a unilateral payment made to the government from the public for various purposes. There are many types of taxes, such as the income tax, wealth tax and so forth which constitutes the major portion of the revenue of the government that can be used for making the public expenditures. Economic efficiency is a situation where no one can be in a better position without hurting the other. In the case, the economic efficiency is the situation where the marginal benefit of the consumer from the last unit produced is equal to the marginal cost of the production of the unit. This means that both of them will be the same and neither the consumer nor the producer can be in a better position. The sum of the consumer surplus and the producer surplus, which is the economic surplus will be at its maximum.

Here, the tax imposed on the vacation rental homes is 12% which is equal to $120. This is because the equilibrium rent was $1000 before the tax and the equilibrium quantity of rental rooms demanded and supplied was 400. After the introduction of the tax on the rental homes, the price of the rental homes increased to $1,060 which is $60 higher than the equilibrium rent. As a result of the new tax, the supply curve shifts upwards by the amount of tax imposed.

Thus, the supply vertically shifts by the tax amount of $120 and as a result, the quantity demanded decreases to 320 rental houses. The owner of the house receives only $940 which is the reason for the decrease in the supply of the rental houses in the market. Thus, the consumer has to pay $60 more than the equilibrium price, whereas the owner receives $60 less than the equilibrium price received by him before the tax. Thus, the tax is equally shared among the consumer and the owner by $60 each. The economic efficiency is reduced by the tax because there will be deadweight loss in the economy due to the tax imposed by the government. The deadweight loss in the economy can be represented by the grey shaded area in the graph as follows:

Macroeconomics Plus MyEconLab with Pearson eText (1-semester access), Chapter 4, Problem 1TC

The new quantity demanded after the introduction of the tax is 320 houses and the new price after the introduction of the tax is $1,060. The price actually received by the owner of the house also reduces to $940 which means that both the owner and the consumer is paying $60 each as tax. This shows that the tax burden is evenly distributed among the seller and the buyer. There is deadweight loss in the economy because of the tax and it can be denoted by the area shaded in grey color on the graph.

Answer 13

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy which includes the income tax, property tax and professional tax and so forth.

Economic efficiency: It is the situation where the economy is efficient. Which means that the marginal benefit from the last unit produced is equal to the marginal cost of production and the economic surplus will be at is maximum.

Answer 14

Ch. 4.A - Prob. 1RQ Ch. 4.A - Prob. 2RQ Ch. 4.A - Prob. 3RQ Ch. 4.A - Why would economists use the term deadweight loss...Ch. 4.A - Prob. 5PA Ch. 4.A - Prob. 6PA Ch. 4.A - Prob. 7PA Ch. 4.A - Prob. 8PA Ch. 4.A - Prob. 9PA Ch. 4 - The figure below shows the market for vacation...

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