Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 4, Problem 4.4.3RQ
To determine
The difference between the tax paid by buyers and sellers.
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The City of Philadelphia is currently considering a 3 cent per ounce tax on sugary beverages. A member of the City Council happens to have majored in economics and suggests that the city also consider an equivalent lump-sum tax that generates the same revenue. (a) Which sort of tax would a consumer prefer, and why? Draw a graph comparing the two taxes to help illustrate your answer. (b) Which sort of tax would an economist prefer, and why? (c) Which sort of tax might a politician prefer, and why?
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Draw a supply and demand graph for cookies, showing the equilibrium price and quantity. On the same graph, assume that the government imposes a $5 tax on cookies. Show on the graph the following: what happens to the price paid by the buyers, what happens to the price received by the sellers, the size of the tax, what happens to the quantity sold, what the consumer surplus is after the tax, what the producer surplus is after the tax, what the government tax revenue is after the tax, and what the deadweight loss is after the tax Use letters to label the different areas on the graph where needed. You don’t need to show any shift of supply or demand
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Chapter 4 Solutions
Macroeconomics (7th Edition)
Ch. 4.A - Prob. 1RQCh. 4.A - Prob. 2RQCh. 4.A - Prob. 3RQCh. 4.A - Why would economists use the term deadweight loss...Ch. 4.A - Prob. 5PACh. 4.A - Prob. 6PACh. 4.A - Prob. 7PACh. 4.A - Prob. 8PACh. 4.A - Prob. 9PACh. 4 - Prob. 1TC
Ch. 4 - Prob. 2TCCh. 4 - Prob. 4.1.1RQCh. 4 - Prob. 4.1.2RQCh. 4 - Prob. 4.1.3RQCh. 4 - Prob. 4.1.4RQCh. 4 - Prob. 4.1.5PACh. 4 - Prob. 4.1.6PACh. 4 - Prob. 4.1.7PACh. 4 - Prob. 4.1.8PACh. 4 - Prob. 4.1.9PACh. 4 - Prob. 4.1.10PACh. 4 - Prob. 4.1.11PACh. 4 - Prob. 4.1.12PACh. 4 - Prob. 4.1.13PACh. 4 - Prob. 4.1.14PACh. 4 - Prob. 4.2.1RQCh. 4 - What is economic efficiency? Why do economists...Ch. 4 - Prob. 4.2.3PACh. 4 - Prob. 4.2.4PACh. 4 - Prob. 4.2.5PACh. 4 - Prob. 4.2.6PACh. 4 - Prob. 4.2.7PACh. 4 - Prob. 4.2.8PACh. 4 - Prob. 4.2.9PACh. 4 - Prob. 4.2.10PACh. 4 - Prob. 4.3.1RQCh. 4 - Prob. 4.3.2RQCh. 4 - Prob. 4.3.3RQCh. 4 - Prob. 4.3.4RQCh. 4 - Prob. 4.3.5PACh. 4 - Prob. 4.3.6PACh. 4 - Prob. 4.3.7PACh. 4 - Prob. 4.3.8PACh. 4 - Prob. 4.3.9PACh. 4 - Prob. 4.3.10PACh. 4 - Prob. 4.3.11PACh. 4 - Prob. 4.3.12PACh. 4 - Prob. 4.3.13PACh. 4 - Prob. 4.3.14PACh. 4 - Prob. 4.3.15PACh. 4 - Prob. 4.3.16PACh. 4 - Prob. 4.3.17PACh. 4 - Prob. 4.3.18PACh. 4 - Prob. 4.3.19PACh. 4 - Prob. 4.4.1RQCh. 4 - Prob. 4.4.2RQCh. 4 - Prob. 4.4.3RQCh. 4 - Prob. 4.4.4RQCh. 4 - Prob. 4.4.5PACh. 4 - Prob. 4.4.6PACh. 4 - Prob. 4.4.7PACh. 4 - Prob. 4.4.8PACh. 4 - Prob. 4.4.9PACh. 4 - Prob. 4.4.10PACh. 4 - Prob. 4.2CTE
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- The following graph shows the weekly market for sweatpants in some hypothetical economy. Suppose the government levies a tax of $10.15 per pair. The tax places a wedge between the price buyers pay and the price sellers receive. Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Pairs of sweatpants) (Dollars per pair) (Dollars per pair) Before Tax After Tax Using your answers from the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden Elasticity (Dollars per pair) Buyers Sellers The tax burden falls more heavily on the side of the market…arrow_forwardCan you explain what happens when a tax is imposed on the buyer of a product and also what would happen if a tax is imposed on the seller? arrow_forwardBriefly explain (3-5 sentences) why it usually makes sense for the government to impose taxes on markets (and products) that have an inelastic demand instead of markets with an elastic demand.arrow_forward
- In the past, some counties and countries have imposed taxes on sugar, saturated fats, and food made with those ingredients as a way to reduce consumption of those foods. Assume the government imposes a unit tax on all chocolate. Answer the following questions: Will consumers be able to shift this tax to sellers? If yes explain why/how. If no explain why not. Based on your answer to c, who will bear the incidence of this tax?arrow_forwardSuppose that the government imposes a per-unit tax on cell phones. The tax is imposed on producers of cell phones and the amount of the tax is $50 per cell phone. The following graph shows the effect of the tax. Use the graph to answer the following questions. a) How much of the tax per cell phone is paid by producers? How much of the tax per cell phone is paid by consumers? b) How much tax revenue (in total) does the government collect from the tax imposed on cell phones? c) What is the amount of the deadweight loss due to the presence of the tax on cell phones?arrow_forwardThe following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive. Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. The burden of the tax falls more heavily on the ___ elastic side of the market.arrow_forward
- The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive. Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Bottles of wine) (Dollars per bottle) (Dollars per bottle) Before Tax After Tax Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden Elasticity (Dollars per bottle) Buyers Sellers The burden of the tax falls more heavily on the ___ elastic side of the market.arrow_forwardPhiladelphia and several other cities have imposed an excise tax on sugary drinks (it’s aimed primarily at sodas such as Coca-Cola and Pepsi-Cola, but would apply to all drinks with high sugar content). Philadelphia’s tax significantly increases the price of sodas and other sugary beverages. While other cities have cited the health benefits of cutting back on sugar consumption as the reason for an excise tax on sugary drinks, Philadelphia’s mayor said that his city would impose the tax to raise revenue for the city government to pay for pre-kindergarten and other popular services. Which is an excise tax on sugary drinks more likely to accomplish: a large reduction in the consumption of sugary drinks, or a large boost in revenue for local government? Justify your answer, being sure to identify the concept that your justification rests on.arrow_forwardIn 1990, the U.S. Congress imposed an excise tax on yachts built in the U.S. and other high-priced luxury products such as jewelry and fur coats with a price over $100,000. The Joint Congressional Committee on Taxation predicted that these so-called “luxury taxes” would raise more than $30 million for the federal government in 1991. In fact, these taxes generated only about $16 million in revenue. Furthermore, about 7500 jobs in the U.S. boat-building industry were lost, so those workers paid less in income taxes. Putting this all together, the luxury tax led to a decrease of $7 million in government revenue rather than the predicted $30 million increase. Why didn’t the plan to raise government revenue by imposing an excise tax on luxury goods work as planned? Explain what mistake Congress made in setting the tax on luxury products.arrow_forward
- Use the graph to answer the following question: Which letters on the graph represent consumer surplus before the tax? A) W, T, and V B) R, S, T, and W C) U and V D) R, S, and Uarrow_forwardSuppose a tax is levied in the market for soda. Consider a $0.50 excise tax on producers for each soda sold. The graph illustrates the demand and supply curves for soda both before and after the tax is levied. Use the graph below to answer the remaining parts of this question. d. What is the consumer surplus generated after the imposition of the tax? Shade in this area on the graph. Instructions: Use the tool provided “CStax” to illustrate this area on the graph. Consumer surplus after the imposition of the tax is $ thousand. e. What is the producer surplus generated after the imposition of the tax? Shade in this area on the graph. Instructions: Use the tool provided “PStax” to illustrate this area on the graph. Producer surplus after the imposition of the tax is $ thousand. f. What is the total revenue generated from the tax? Shade in this area on the graph. Instructions: Use the tool provided “TR” to illustrate this area on the graph. Tax…arrow_forwardUse the graph to answer the following question: Which of the following statements is most true? A) Producers will pay the entire tax. B) Consumers will pay 1/3 of the tax. C) Producers will pay 1/3 of the tax. D) Consumers will pay the entire tax.arrow_forward
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