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3. Relationship between tax revenues, deadweight loss, and demand elasticity The government is considering levying a tax of $25 per unit on suppliers of either windbreakers or bucket hats. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for windbreakers is shown by Dw (on the first graph), and the demand for bucket hats is shown by DB (on the second graph). Suppose the government taxes windbreakers. 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 ($25 per windbreaker). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for windbreakers. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. (?) PRICE (Dollars per windbreaker) 60 55 50 45 40 35 30 25 20 15 10 - 5 0 Windbreakers Market S+Tax Supply Dw 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Windbreakers) Tax Revenue Deadweight Loss

3. Relationship between tax revenues, deadweight loss, and demand elasticity The government is considering levying a tax of $25 per unit on suppliers of either windbreakers or bucket hats. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for windbreakers is shown by Dw (on the first graph), and the demand for bucket hats is shown by DB (on the second graph). Suppose the government taxes windbreakers. 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 ($25 per windbreaker). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for windbreakers. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. (?) PRICE (Dollars per windbreaker) 60 55 50 45 40 35 30 25 20 15 10 - 5 0 Windbreakers Market S+Tax Supply Dw 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Windbreakers) Tax Revenue Deadweight Loss

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
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3. Relationship between tax revenues, deadweight loss, and demand elasticity The government is considering levying a tax of $25 per unit on suppliers of either windbreakers or bucket hats. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for windbreakers is shown by Dw (on the first graph), and the demand for bucket hats is shown by DB (on the second graph). Suppose the government taxes windbreakers. 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 ($25 per windbreaker). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for windbreakers. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. PRICE (Dollars per windbreaker) 60 55 50 45 40 35 30 25 10 5 0 0 Windbreakers Market S+Tax Supply Dw 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Windbreakers) Tax Revenue Deadweight Loss
Transcribed Image Text:3. Relationship between tax revenues, deadweight loss, and demand elasticity The government is considering levying a tax of $25 per unit on suppliers of either windbreakers or bucket hats. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for windbreakers is shown by Dw (on the first graph), and the demand for bucket hats is shown by DB (on the second graph). Suppose the government taxes windbreakers. 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 ($25 per windbreaker). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for windbreakers. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. PRICE (Dollars per windbreaker) 60 55 50 45 40 35 30 25 10 5 0 0 Windbreakers Market S+Tax Supply Dw 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Windbreakers) Tax Revenue Deadweight Loss
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