Question

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 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.

 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 Wedge 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.

 Suppose the government is currently imposing an $80-per-bottle tax on vodka.

 True or False: The government can raise its tax revenue by increasing 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 1/2 x Base X 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.)

 As the tax per bottle increases, deadweight loss _______ 

Answer 1

Answer 2

Do it the same way as the anser above or  use the formula 

DWL= [12×Tax×Original Equilibrium Quantity−New Equilibrium Quantity" role="presentation" style="display: inline-table; line-height: normal; font-size: 12px; word-spacing: normal; overflow-wrap: normal; float: none; direction: ltr; max-width: none; max-height: none; min-width: 0px; min-height: 0px; border: 0px; padding: 0px; margin: 0px; position: relative;">Tax×(Original Equilibrium Quantity−New Equilibrium Quantity) ] / 2 ]