9. 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+ Taz) 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. Concert Tickets Market 120 110 S-Tax Supply 100 Tax Revenue 90 80 Desdveight Loss 70 60 50 40 30 20 10 50 100 150 200 250 300 3s0 400 450 500 s00 600 QUANTITY (Tickets) Instead, suppose the govermment taxes bus passes. The following graph shows the annual supply and demand for this good, as wwell as the supply curve shifted up by the amount of the proposed tax (S60 per pass). PRICE (Dollars per ticket)
9. 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+ Taz) 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. Concert Tickets Market 120 110 S-Tax Supply 100 Tax Revenue 90 80 Desdveight Loss 70 60 50 40 30 20 10 50 100 150 200 250 300 3s0 400 450 500 s00 600 QUANTITY (Tickets) Instead, suppose the govermment taxes bus passes. The following graph shows the annual supply and demand for this good, as wwell as the supply curve shifted up by the amount of the proposed tax (S60 per pass). PRICE (Dollars per ticket)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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macroeconmics question 9
Transcribed Image Text:9. 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+ Taz) 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.
Concert Tickets Market
120
110
S-Tax
Supply
100
Tax Revenue
90
80
Desdveight Loss
70
60
50
40
30
20
10
50
100 150 200 250 300 3s0 400 450 500 s00 600
QUANTITY (Tickets)
Instead, suppose the govermment taxes bus passes. The following graph shows the annual supply and demand for this good, as wwell as the supply
curve shifted up by the amount of the proposed tax (S60 per pass).
PRICE (Dollars per ticket)
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