Question

Suppose the government imposes a $20-per-bottle tax on suppliers.

At this tax amount, the equilibrium quantity of gin is _______ bottles, and the government collects $_______  in tax revenue.

Now calculate the government's tax revenue if it sets a tax of 50, $20, $40, $50, $60, $80, or $100 per bottle.  Hint: To find the equilibrium quantity after the tax, adjust the "Quantity" field until the Tax equals the value of the per-unit tax.) Using the data you generate, plot a Laffer curve by using the green points (triangle symbol) to plot total tax revenue at each of those tax levels.

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Suppose the government is currently imposing a $60-per-bottle tax on gin.

True or False: The government can roise its tax revenue by increasing the per-unit tax on gin.

Consider the deadweight loss generated in each of the following cases: no tax, a tax of $40 per bottle, and a tax of $80 per bottle.

On the following graph, use the black curve (plus symbols) to illustrate the deadweight loss in these cases. (Hint: Remember that the area of a triangle is equal to 1/2 × Base × Height. In the case of a deadweight loss triangle found on the graph input tool, the base is the amount of the tax and the height is the reduction in quantity caused by the tax.)

Answer 1

Equilibrium occurs when demand equals supply which occurs when price is $50 and quantity traded is 100 units. At tax of $20, equilibrium quantity is 80 units while government collects tax revenue of 1,600.

erit 100 Supply A-600 Br Got +-+-+- Demand quantity 80 100

trilt Solo e k=80/--- 6170---- Asbob----..! . ! Ter/-+--! Bayot -L.. --+- Demerd -- Igrott- Im N=10 to R=0 20 no Go - 80 100

Tax Amount	Tax Revenue of Area of rectangle	Area of tax revenue	Deadweight loss of Area of triangle	Area of deadweight loss
20	ABCD	1600	CDE	200
40	GHIF	2400	HIE	800
60	KLMJ	2400	MLE	1800
80	OPQN	1600	QPE	3200
100	No Revenue Collected	0	SRE	5000

Laffer Curve:

3000 Tax Revenue 20 40 100 120 Тах

• Government can raise the tax revenue by raising is a false statement as after tax amount of $60, tax revenue starts falling.
• If current tax is $60, raising tax per unit would reduce the tax revenue as we can see the Laffer curve falling down. Thus this statement is false.

Deadweight Loss:

Deadweight Loss 20 40 80 100 60 Tax 120

• As tax rises, deadweight loss rises with it.