The graphs below show the impact of a $6 excise tax on each good. Based on the e

Question

The graphs below show the impact of a $6 excise tax on each good. Based on the elasticity of demand for each good, how much tax revenue and deadweight loss will result from the tax? Amount of te) 134 Drag word('s) below to fil in the blank(s) in the passage. Ahas demand, which yields of idemand, which creates tax revenue ofand . The good in graph A has : . tax revenue of and a deadweight loss . The good in graph B has of deadweight loss. fthe government places an equal tax on two goods, there will be tax revenue anddeadweight loss generated by the good that has the most demand. $150): perfectly elastic, S60? $0?| less*| more" $300÷ $1200+| $100÷ elastic $900 perfectly inelastic inelastic

Explanation / Answer

The good in graph A has elastic demand, which yields tax revenue of $900 [= Tax per unit x After-tax quantity = $(36 - 30) x 150 = $6 x 150 = $900] and a deadweight loss of $150 [= (1/2) x Tax per unit x Difference in quantity = (1/2) x $(36 - 30) x (200 - 150) = (1/2) x $6 x 50 = $150]. The good in graph B has perfectly inelastic demand, which creates tax revenue of $1200 [= $(36 - 30) x 200 = $6 x 200 = $1200] and deadweight loss of $0. If the government places equal tax on both goods, there will be more tax revenue and less deadweight loss generated by good that has most inelastic demand.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.