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 gin, 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 (? 100 Market for Gin Supply Quantity 64 (Bottles) Demand Price 60.00 Supply Price 40.00 (Dollars per bottle) (Dollars per bottle) Tax 20.00 (Dollars per bottle) PRICE (Dollars per bottle) 0 8 8 8 8 8 8 8 8 8 Demand 0 16 32 48 64 80 96 112 128 144 160 QUANTITY (Bottles) Suppose the government imposes a $20-per-bottle tax on suppliers. At this tax amount, the equilibrium quantity of gin is bottles, and the government collects |$ 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.2000 * 1300 1600 Lalfar Curve 1400 1200 1000 600 TAX REVENUE (Dollars) 500 400 200 0 1D 20 30 40 50 60 70 50 90 100 TAX (Dollars per bottle) Suppose the government is currently imposing a $20-per-bottle tax on gin. True or False: The government can raise its tax revenue by decreasing the per-unit tax on gin. 0 True 0 False Consider the deadweight loss genemted 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 % 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.) (9 True or False: The government can raise its tax revenue by decreasing the per-unit tax on gin. 0 True 0 False Consider the deadweight loss genemted 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 % 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.) (9 3200 if Deadweighl Loss 2880 2560 B A D 1920 _. _. N m l3 0 D O DEADWEIGHT LOSS (Dollars) 3 D 640 320 0 1o 20 30 40 50 an 70 increasesand then decreases TAX {Dollars per bottle) increases at a constant rate increases by a greater and greater amount As the tax per bottle increases, deadweight loss 7 . Grade It Now Save & Continue Conlinue without saving