=+8.11 Policy Application: Tax Revenues and the Laffer Curve: In this exercise, we will consider how the tax rate on wages relates to the amount of tax revenue collected.

A. As introduced in Section B, the Laffer Curve depicts the relationship between the tax rate on the horizontal axis and tax revenues on the vertical. (See the footnote in Section 8B.2.2 for background on the origins of the name of this curve.) Because people’s decision on how much to work may be affected by the tax rate, deriving this relationship is not as straightforward as many think.