Exam 8: Application the Cost of Taxation: Part A

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3.Suppose that a tax of T is placed on buyers so that the demand curve becomes: How much tax revenue will be collected after this tax is imposed?

Figure 8-29 -Refer to Figure 8-29.As the size of the tax increases from $3 to $6 to $9,what happens to the deadweight loss from the tax?

Describe the Laffer curve.

Suppose the demand curve and the supply curve in a market are both linear.If a $2 tax per unit results in a deadweight loss of $200,how large would be the deadweight loss from a $3 tax per unit?

Figure 8-25 -Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.How much is total surplus after the tax is imposed?

Use the following graph shown to fill in the table that follows.

Suppose that instead of a supply-demand diagram,you are given the following information: Q_s = 100 + 3P Q_d = 400 - 2P From this information compute equilibrium price and quantity.Now suppose that a tax is placed on buyers so that Q_d = 400 - 2(P + T). If T = 15,solve for the new equilibrium price and quantity.(Note: P is the price received by sellers and P + T is the price paid by buyers. )Compare these answers for equilibrium price and quantity with your first answers.What does this show you?

Figure 8-25 -Refer to Figure 8-25.Suppose the government places a $4 tax per unit on this good.What price will consumers pay for the good after the tax is imposed?

Figure 8-25 -Refer to Figure 8-25.How much is producer surplus at the market equilibrium?

Suppose that the market for product X is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.If a $2 tax per unit results in a deadweight loss of $200,how large would be the deadweight loss from a $6 tax per unit?

Figure 8-26 -Refer to Figure 8-26.Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit.Will the tax revenue collected from the tax increase,decrease,or stay the same?

Figure 8-28 -Refer to Figure 8-28.Suppose that Market A is characterized by Demand 1 and Supply 1,and Market B is characterized by Demand 1 and Supply 2.If an identical tax is imposed on each market,the tax will create a larger deadweight loss in which market? Explain.

Figure 8-26 -Refer to Figure 8-26.Suppose the government places a $3 tax per unit on this good.How many units of this good will be bought and sold after the tax is imposed?

Figure 8-25 -Refer to Figure 8-25.How much is total surplus at the market equilibrium?

Figure 8-25 -Refer to Figure 8-25.What are the equilibrium price and equilibrium quantity in this market?

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3.Suppose that a tax of T is placed on buyers so that the demand curve becomes: What will be the deadweight loss from this tax?

Illustrate on three demand-and-supply graphs how the size of a tax (small,medium and large)can alter total revenue and deadweight loss.

Suppose the demand curve and the supply curve in a market are both linear.To begin,there was a $5 tax per unit,and the $5 tax resulted in a deadweight loss of $1,500.Now,the tax per unit is higher,with the higher tax resulting in a deadweight loss of $6,000.What is the amount of the new tax per unit?