EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Chapter 8, Problem 5QR
To determine
The impact of increased tax on tax revenue and the
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What happens to the deadweight loss and taxrevenue when a tax is increased?
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The graph shows the demand and supply of bungee jumps in
Xtremeland. The government decides to impose an excise tax
on bungee jumps to help pay for the high number of back and
neck injuries.
What would the government's tax revenue be if it imposes a
tax of $80 on each jump?
What would the government's tax revenue be if it imposes a
tax of $40 on each jump?
S
What would the government's tax revenue be if it imposes a
tax of $120 on each jump?
$
S
Price of bungee jumps ($)
200
Supply
180
160.
140
120-
100.
80
60.
40
20
0
10,000
30,000
50,000
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Demand
70,000
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- What is the nature of the deadweight loss accompanying taxes? Why is it often referred to as an excess burden?arrow_forwardWhat are pros and cons to increasing the gasoline tax?arrow_forwardIf the government wants to raise tax revenue, which of the following items are good candidates for an excise tax? Choose one or more: A. toilet paper B. automobile tires C. cigarettes D. sweet potatoesarrow_forward
- The graph shows the demand and supply of bungee jumps in Xtremeland. The government decides to impose an 200 Supply 180 excise tax on bungee jumps to help pay for the high 160 number of back and neck injuries. 140 120- 100- 80 60- 40 Demand 20- 50,000 0 10,000 30,000 70,000 Quantity of bungee jumps What would the government's tax revenue be if it imposes a tax of $80 on each jump? What would the government's tax revenue be if it imposes a tax of $40 on each jump? What would the government's tax revenue be if it imposes a tax of $120 on each jump? Price of bungee jumps (S)arrow_forwardThe government is considering imposing an excise tax on the following set of items. If the government wants to minimize the deadweight loss (DWL) of taxation, which of the following items are good candidates for an excise tax Choose one or more: A. Tangerines B. Gasoline C. Salt D. Ford trucksarrow_forwardDraw a supply-and-demand diagram with a tax onthe sale of a good. Show the deadweight loss. Showthe tax revenuearrow_forward
- In the graph below, click on the line segment that denotes the size of a sales tax imposed on the coffee market. price, P 0 B A D S coffee, Qarrow_forwardHow does a tax on a good affect the price paid bybuyers, the price received by sellers, and the quantitysold?arrow_forwardWould consumer or producer carry the burden of tax if good is inelastic? Show on a grapharrow_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. 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_forwardIf the government quadruples the amount of tax on gasoline, can you be sure that revenue fromg asoline tax will rise? Can you be sure that the deadweight loss from the gasoline tax will rise? Explain. (Hint: Incorporate graphs)arrow_forwardThe following graph shows the market for the long-distance bus rides. In the absence of taxes, the equilibrium price of a ride is $5 and the equilibrium quantity is 10 million rides. Suppose that regulator levies an excise tax on bus service providers. The amount of excise tax equals $2 per ride. How much will buyers pay for a bus ticket after the tax is imposed? $4.50 $6 $5.50 $5arrow_forward
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