Chapter 8
Suppose the government imposes a tax of P'-P'''. The tax revenue is measured by the area
K+L
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).
As a result of the tax, buyers effectively pay
$32 for each unit of the good and sellers effectively receive $16 for each unit of the good
Suppose the government imposes a tax of P'-P'''. The area measured by K+L represents
Tax revenue
When a tax is imposed on buyers of a good, the demand curve shifts
downward by the amount of the tax
Suppose the government imposes $1 tax in each of the four markets represented supply Curves S1,S2,S3, and S4. The deadweight will be the smallest in the market represented by
inelastic= smaller deadweight loss Answer S1
Suppose the government imposes $1 tax in each of the four markets represented supply Curves S1,S2,S3, and S4. The deadweight will be the largest in the market represented by
larger deadweight loss means more elastic Answer: S4
If the size of a tax increases, tax revenue
may increase, decrease, or remain the same
As the size of the tax rises, the deadweight loss
rises and tax revenue first rises, then falls
As a result of the tax, the consumer surplus decreases by
160, producer surplus decreases by 160, tax revenue by 240, and deadweight loss by 80
Suppose the government imposes a tax of P'-P'''. The deadweight loss due to the tax is measured by the area
I+Y
Suppose the government imposes a tax of P'-P'''. Total surplus before the tax is measured by the area
Before the tax! answer: I+J+K+L+M+Y
If the economy is at point B on the curve, than an increase in the tax rate will
increase deadweight loss of the tax and decrease the tax revenue.
If the economy is at point A on the curve, then a small increase in the tax rate will
increase the deadweight loss of the tax and increase tax revenue
suppose the government increases the size of a tax by 20 percent. the deadweight loss from the tax
increases by more than 20 percent
An increase in the size of a tax is most likely to increase tax revenue in a market with
inelastic demand and inelastic supply
when a tax is placed on a product, the price paid by buyers
rises and the price received by sellers falls
As a result of the tax
the market experiences a deadweight loss of $80
Suppose the government imposes a tax of P'-P'''. The area measured by J+K+L+M represents
total surplus after tax
Suppose the government imposes a tax on of P'-P'''. The area measured by I+J+K+L+M+Y represents
total surplus before tax