Question

4. The Laffer curve 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 cigarettes, 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.

Answer 1

lan pa per pack on suppliers - At this tax amount the eduilibrium quantity of cigarettes is 80 packs and the govt. colleets $80x4 = $320 in tax revenues. Tax (3) quantity tax rev(6) 100 80 820 480 60 10 480 16 320 Sunday 10

300 720 640 560 490 Laffer curve Revenue (6) 320 240 Tape 160 80 0 2 4 6 8 10 12 14 16 C& per pack) i 20 Tax

The govt is currently imposing a $12 per pack tax on cigarettes the gord. cannot raise the tax revenue by impreasing the per umid tax on cigarettes Therefore the given statement is FALSE Tax($) quantity OWL($) 60 £ (100-60) x 8 = $160 20 20 £x (100-20) + 16 = $640

WL 640 560 480 и со I owed 320 160 6 8 10 12 14 16 18 20 Tan & perpacky after fax per paen imereases, BOWL impreases by greater and greater amount EB 19 F 1 S 2 S 3 M 4 T 5 W 6 T 7 F S S M T W T T