4. The Laffer curve Governments often place so-called sin taxes on goods or services such as...

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4. The Laffer curve Governments often place so-called sin taxes on goods or services such as cigarettes, alcohol, and pornography. These kinds of taxes are popular with politicians because they are usually more palatable to voters than income taxes To understand the effect of such a tax, consider the monthly market for cigarettes, 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. Graph Input Tool Market for Cigarettes 20 s Quantity 80 6.67 Supply Price 0.00 t9 (Packs) Demand Price (Dollars per pack) Tax Wedge (Dollars per pack) 1 33 Dollars per pack) 12 10 0122·3048 60 72849610a,20 QUANTITY (Packs) Suppose the government imposes a 54 per pack tax on suppiers 573 in tax revenue packs, and the

Suppose the government imposes a $4-per-pack tax on suppliers. in tax revenue At this tax amount, the equilibrium quantity of cigarettes is packs, and the government collectss Now calculate the governments tax revenue if it sets a tax of $o, $4, s8, $10, $12, $16, or $20 per pack. (Hint: To find the equilbrium quantity after the tax, adjust the Quantity field until the Tax Wedge equals the value of the per-unit tax.) Using the data you generate, the green points (triangle symbol) to piot total tax revenue at each of those tax levels plot a Laffer curve by using to plot total tax revenue at Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically 270 Laffer Curve 240 210 4 180 120 80 30 TAX (Dllas per pack) Suppose the government is currently imposing a $12-per pack tax on cigarettes

Suppose the government is currently imposing a $12-per-pack tax on cigarettes True or False: The government can raise its tax revenue by decreasing the per-unit tax on cigarettes ○True O False Consider the deadweight loss generated in each of the following cases: no tax, a tax of $8 per pack, and a tax of $16 per pack. On the following graph, use the triangle is equal to1×Base × Height. In the case of a dead weight loss the height is the reduction in quantity caused by the tax) black curve (plus symbols) to lustrate the deadweight loss in these cases. (Hint: Remember that the area ofa triangle found on the graph inpue tool, the base is the amount of the tax and 432 Deadweight Loss 384 92 5559 TAX (Dars per pack

llustrate the deadweight loss in these cases. (Hint: Remember that the area of a se of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and triangle is equal to Base x Height. the height is the reduction in quantity caused by the tax.) In the ca 480 432 Deadweight Loss 240 192 increases and then decreases increases at a constant rate increases by a greater and greater amount 12 TAX (Dolars per pack) As the tax per pack increases, deadweight loss

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Laffer Curve 300 240 180 120 60 0 Tax Rate

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