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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Daniel Patrick Moynihan, the late senator from New York, once introduced a bill that would levy a 10,000 percent tax on certain hollow-tipped bullets.

a. Do you expect that this tax would raise much revenue? Why or why not?

b. Even if the tax would raise no revenue, why might Senator Moynihan have proposed it?

Subpart (a):

To determine
The impact of very high tax rate.

Explanation

The tax is the unilateral payment made to the government from the part of the people. When the tax is imposed on the commodity the price received by the sellers falls to PS which is less than the equilibrium price and the price that the consumer pays increases to PS+ tax amount which will be higher than the equilibrium level. Thus, the tax increases price and the elastic demand and supply curves react by large fall in the quantity demanded and supplied at the new higher price level...

Subpart (b):

To determine
The impact of very high tax rate.

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