1. Taxes and Efficiency Suppose the government is thinking about levying a per-unit tax of $30 on firms supplying either sweatpants or glasses. The supply curves for both of the two goods are identical, as given by the following graphs. The demand for sweatpants is given by DSDS (on the first graph), and the demand for glasses is given by DGDG (on the second graph). Suppose the government decides to tax sweatpants. The following graph plots the yearly demand and supply for this good. It also plots another supply curve (S+TaxS+Tax) shifted upward by the proposed tax amount ($30 per pair). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for sweatpants. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Sweatpants MarketTax RevenueDeadweight Loss050100150200250300350400450500550600605550454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs)DSSupplyS+Tax50, 35 Suppose the government decides to tax glasses, instead. The following graph plots the yearly supply and demand curves for this good, as well as another supply curve shifted upward by the proposed tax amount ($30 per pair). On the following graph, perform the same exercise that you did on the graph for sweatpants. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for glasses. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Glasses MarketTax RevenueDeadweight Loss050100150200250300350400450500550600605550454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs)DGSupplyS+Tax Complete the following table by entering the tax revenue collected and deadweight loss caused by each of the two tax proposals. If the Government Taxes... Tax Revenue Deadweight Loss (Dollars) (Dollars) Sweatpants at $30 per pair Glasses at $30 per pair If the goal of the government is to impose the tax that is more efficient, it should tax . (Hint: Assume the administrative burdens of the two tax laws are equal.)

1. Taxes and Efficiency Suppose the government is thinking about levying a per-unit tax of $30 on firms supplying either sweatpants or glasses. The supply curves for both of the two goods are identical, as given by the following graphs. The demand for sweatpants is given by DSDS (on the first graph), and the demand for glasses is given by DGDG (on the second graph). Suppose the government decides to tax sweatpants. The following graph plots the yearly demand and supply for this good. It also plots another supply curve (S+TaxS+Tax) shifted upward by the proposed tax amount ($30 per pair). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for sweatpants. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Sweatpants MarketTax RevenueDeadweight Loss050100150200250300350400450500550600605550454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs)DSSupplyS+Tax50, 35 Suppose the government decides to tax glasses, instead. The following graph plots the yearly supply and demand curves for this good, as well as another supply curve shifted upward by the proposed tax amount ($30 per pair). On the following graph, perform the same exercise that you did on the graph for sweatpants. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for glasses. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Glasses MarketTax RevenueDeadweight Loss050100150200250300350400450500550600605550454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs)DGSupplyS+Tax Complete the following table by entering the tax revenue collected and deadweight loss caused by each of the two tax proposals. If the Government Taxes... Tax Revenue Deadweight Loss (Dollars) (Dollars) Sweatpants at $30 per pair Glasses at $30 per pair If the goal of the government is to impose the tax that is more efficient, it should tax . (Hint: Assume the administrative burdens of the two tax laws are equal.)

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter6: Demand And Elasticity

Section: Chapter Questions

Problem 3TY

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1. Taxes and Efficiency

Suppose the government is thinking about levying a per-unit tax of $30 on firms supplying either sweatpants or glasses. The supply curves for both of the two goods are identical, as given by the following graphs. The demand for sweatpants is given by DSDS (on the first graph), and the demand for glasses is given by DGDG (on the second graph).

Suppose the government decides to tax sweatpants. The following graph plots the yearly demand and supply for this good. It also plots another supply curve (S+TaxS+Tax) shifted upward by the proposed tax amount ($30 per pair).

On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for sweatpants. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.

Sweatpants MarketTax RevenueDeadweight Loss050100150200250300350400450500550600605550454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs)DSSupplyS+Tax50, 35

Suppose the government decides to tax glasses, instead. The following graph plots the yearly supply and demand curves for this good, as well as another supply curve shifted upward by the proposed tax amount ($30 per pair).

On the following graph, perform the same exercise that you did on the graph for sweatpants. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for glasses. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.

Glasses MarketTax RevenueDeadweight Loss050100150200250300350400450500550600605550454035302520151050PRICE (Dollars per pair)QUANTITY (Pairs)DGSupplyS+Tax

Complete the following table by entering the tax revenue collected and deadweight loss caused by each of the two tax proposals.

If the Government Taxes...	Tax Revenue	Deadweight Loss
(Dollars)	(Dollars)
Sweatpants at $30 per pair
Glasses at $30 per pair

If the goal of the government is to impose the tax that is more efficient, it should tax . (Hint: Assume the administrative burdens of the two tax laws are equal.)

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