Question

QUESTION 17 Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax 9 Tax Resenue Tax Side Refer to Figure 8-24. Tax revenue would O a. decrease if the economy began at point B and then the tax rate was decreased ob increase if the economy began at point and then the tax rate was decreased c.decrease if the economy began at point and then the tax rate was increased @d. All of the above are correct. QUESTION 18 Figure 8-19 The vertical distance between points A and B represents the original tax US 1 15 3 35 3 35 4 45 S D Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is not correct? a. Compared to the original tax, the smaller tax will decrease deadweight loss O b. Compared to the original tax, the larger tax will increase deadweight loss Oc Compared to the original tax, the smaller tax will decrease tax revenue O d. Compared to the original tax, the larger tax will increase tax revenue

Answer 1

Answer 17

All of the above.

All the 3 scenarios will decrease tax revenue. Remember at point B the revenue is maximized. A leftward movement would decrease tax revenues so will a rightward movement. Similarly a movement from A towards B will increase tax revenue and a movement from F towards B will increase tax revenue.

Answer 18

A.Compared to original tax ,the larger tax will increase tax revenue.

This statement is not true. As the tax revenue when tax is FG is less than the area of tax revenue when the tax is at AB. Thus the tax revenue will start to fall.

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