Question

3. Relationship between tax revenues, deadweight loss, and demandelasticity 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 Dc (on the first graph), and the demand for bus passes is shown by DB (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+Tax) shifted up by the amount of the proposed tax ($60 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.

Answer 1

Ans)

Bus Passes Market 120 Concert Tickets Market Supply ax Revenue 110 100 90 80 Supply 90 s+Tax Tax Revenue Deadweight Los Deadweight Loss 50 50 30 20 10 50 30 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Passes) 10 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Tickets)

If the Government Taxes..	Tax Revenue	Deadweight Loss
Concert tickets at $60 per ticket	6000	7500
Bus passes at $60 per pass	15000	3000

Bus passes market

less