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Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels.

Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels.

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Application: The Cost Of Taxation
Section: Chapter Questions
Problem 10PA
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Government-imposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections.
 
To understand the effect of such a tax, consider the monthly market for rum, which is shown on the following graph.
 
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
 
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
 
 
Suppose the government is currently imposing a $60-per-bottle tax on rum. True or False: The government can raise its tax revenue by decreasing the per-unit tax on rum. O True O False Consider the deadweight loss generated in each of the following cases: no tax, a tax of $40 per bottle, and a tax of $80 per bottle. On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of a triangle is equal to x Base x Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and the height is the reduction in quantity caused by the tax.) 4000 3600 Deadweight Loss 3200 2800 2400 2000 1800 1200 800 400 10 20 30 40 50 60 70 80 90 100 TAX (Dollars per bottle) As the tax per bottle increases, deadweight loss DEADWEIGHT LOSS (Dollars)
Transcribed Image Text:Suppose the government is currently imposing a $60-per-bottle tax on rum. True or False: The government can raise its tax revenue by decreasing the per-unit tax on rum. O True O False Consider the deadweight loss generated in each of the following cases: no tax, a tax of $40 per bottle, and a tax of $80 per bottle. On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of a triangle is equal to x Base x Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and the height is the reduction in quantity caused by the tax.) 4000 3600 Deadweight Loss 3200 2800 2400 2000 1800 1200 800 400 10 20 30 40 50 60 70 80 90 100 TAX (Dollars per bottle) As the tax per bottle increases, deadweight loss DEADWEIGHT LOSS (Dollars)
Market for Rum 100 90 Quantity 80 Supply Bottles 80 Demand Price (Dollars per bottle) Supply Price (Dollars per bottle) 60.00 40.00 70 Таx 20.00 60 (Dollars per bottle) 50 40 30 Demand 20 10 O 20 20 40 80 80 100 120 140 160 180 200 QUANTITY (Bottles) Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. (? 4000 3600 Laffer Curve 3200 2800 2400 2000 1600 1200 800 400 10 20 30 40 50 60 70 80 90 100 TAX (Dollars per bottle) TAX REVENUE (Dollars) PRICE (Dollars per bottle)
Transcribed Image Text:Market for Rum 100 90 Quantity 80 Supply Bottles 80 Demand Price (Dollars per bottle) Supply Price (Dollars per bottle) 60.00 40.00 70 Таx 20.00 60 (Dollars per bottle) 50 40 30 Demand 20 10 O 20 20 40 80 80 100 120 140 160 180 200 QUANTITY (Bottles) Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of rum is bottles, and the government collects S in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. (? 4000 3600 Laffer Curve 3200 2800 2400 2000 1600 1200 800 400 10 20 30 40 50 60 70 80 90 100 TAX (Dollars per bottle) TAX REVENUE (Dollars) PRICE (Dollars per bottle)
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