Question

The government is considering levying a tax of $60 per unit on suppliers of either concert tickets or bus passes. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for concert tickets is shown by De (on the first graph), and the demand for bus passes is shown by D. (on the second graph). Suppose the government taxes concert tickets. The following graph shows the annual supply and demand for this good. It also shows the supply curve (S+Taz) shifted up by the amount of the proposed tax (560 per ticket). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for concert tickets. Then use the black triangle plus symbols) to shade the area that represents the deadweight loss associated with the tax. Concert Tickets Market Tax Revenue 8 8 Deadweight Loss PRICE (Dollars per ticket) 8 8 8 8 R2 + 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Tickets)

Answer 1

So, note that in the following graph the tax revenue is the area which is between the new and old supply curve (as the shift is equal to the taxes) over the quantity purchased. Revenu is shaded in vertical lines.

The deadweight loss, on the other hand, is the area or the surplus which is lost due to the imposition of taxes. Here it is equal to the area which is a triangle in shape as this is lost due to an increase in taxes. It is shaded by slanted lines.  

Stt. 60 o 100 co 300 350 350 525 (2) Bus Pass Concert Tickets

Note that teh area of parallelogram is base*height while teh area of traingle is 1/2*base*height.

The revenue area for graph 1 is 60*100 or 6000 and graph 2 is 250*60 or 15000.

The deadweight loss for graph 1 and 2 are 1/2*60*250 or 7500 and 1/2*60*100 or 3000 respectively.

To earn more revenue, the government must tax bus passes, as less elastic demand generates more tax revenue and less deadweight loss. Less elastic demand means there will be a lesser change in the demand for a good with the change in its price.