4. The Laffer curve Governments often place so-called sin taxes on goods or serv

Question

4. The Laffer curve Governments often place so-called sin taxes on goods or services such as cigarettes, alcohol, and pornography. These kinds of taxes are popular with politicians because they are usually more palatable to voters than income taxes. To understand the effect of such a tax, consider the monthly market for adult DVDs, which is shown on the following graph. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly, Graph Input Tool Market for Adult DVDs 40 36 32 28 o 24 Quantity (DVDs) Supply 80 Demand Price Dollars per DVD) Supply Price Dollars per DVD) 24.00 16.00 Tax Wedge Dollars per DVD) 8.00 12 Demand 4 0 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (DVDs)

Explanation / Answer

False,increases in tax rate decreases tax revenue.

As thetax per Dvd increases , dead weight loss increases by a greater and greater amount.

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