Government-imposed taxes cause reductions in the activity that is being taxed, which has important implications for reve

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Government-imposed taxes cause reductions in the activity that
is being taxed, which has important implications for revenue
collections.
To understand the effect of such a tax, consider the monthly
market for vodka, 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.
0204060801001201401601802001009080706050403020100PRICE (Dollars
per bottle)QUANTITY (Bottles)Demand Supply
Graph Input Tool
Market for Vodka
Quantity
(Bottles)
Demand Price
(Dollars per bottle)
Supply Price
(Dollars per bottle)
Tax
(Dollars per bottle)
Suppose the government imposes a $20-per-bottle tax on
suppliers.
At this tax amount, the equilibrium quantity of vodka is
bottles, and the government collects
in tax revenue.
Now calculate the government's tax revenue if it sets a tax of
$0, $20, $40, $50, $60, $80, or $100 per bottle. (Hint: To find the
equilibrium quantity after the tax, adjust the “Quantity” field
until the Tax equals the value of the per-unit tax.) Using the data
you generate, plot a Laffer curve by using the green points
(triangle symbol) to plot total tax revenue at each of those tax
levels.
Note: Plot your points in the order in which you would like them
connected. Line segments will connect the points automatically.
Laffer
Curve0102030405060708090100400036003200280024002000160012008004000TAX
REVENUE (Dollars)TAX (Dollars per bottle)
Suppose the government is currently imposing a $60-per-bottle
tax on vodka.
True or False: The government can raise its tax revenue by
decreasing the per-unit tax on vodka.
True
False
Consider the deadweight loss generated in each of the following
cases: no tax, a tax of $40 per bottle, and a tax of $80 per
bottle.
On the following graph, use the black curve (plus symbols) to
illustrate the deadweight loss in these cases. (Hint: Remember that
the area of a triangle is equal
to 12×Base×Height12×Base×Height. In the case of a deadweight
loss triangle found on the graph input tool, the base is the amount
of the tax and the height is the reduction in quantity
caused by the tax.)
Deadweight
Loss0102030405060708090100400036003200280024002000160012008004000DEADWEIGHT
LOSS (Dollars)TAX (Dollars per bottle)100, 2400
As the tax per bottle increases, deadweight loss