7. Taxes and welfare Consider the market for electric scooters. The following graph shows the demand and supply for electric scooters before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of electric scooters in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. Before Tax 300 270 Demand Equilibrium 240 A 210 180 Consumer Surplus 150 PRICE (Dollars per scooter) 120 Producer Surplus 90 Supply 60 30 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Scooters)Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax. Note: You can determine the areas of different portions of the graph by selecting the relevant area. Before Tax After Tax (Dollars) (Dollars) Consumer Surplus Producer Surplus Tax Revenue O Deadweight Loss O8. Effect of a tax on buyers and sellers The following graph shows the daily market for wine when a tax on sellers is set at $0 per bottle. Suppose the government institutes a tax of $23.20 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) 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 (?) 200 Market for Wine 180 Quantity (Bottles of wine) 50 Supply Demand Price 300.00 Supply Price 68.00 (Dollars per bottle) (Dollars per bottle) Supply Shifter PRICE (Dollars per bottle) 8 8 8 8 8 5 5 8 Tax on Sellers 0.00 Demand (Dollars per bottle) 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bottles of wine)Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay Price Sellers Receive (Bottles of wine) (Dollars per bottle) (Dollars per bottle) Before Tax After Tax less Using the data from the previous table, the tax that falls on buyers is $ and the tax burden of sellers is $ more The burden of the tax falls more heavily on the elastic side of the market.9. Relationship between tax revenues, deadweight loss, and demandelasticity The government is considering levying a tax of $30 per unit on suppliers of either windbreakers or bucket hats. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for windbreakers is shown by Dw (on the first graph), and the demand for bucket hats is shown by DB (on the second graph). Suppose the government taxes windbreakers. The following graph shows the annual supply and demand for this good. It also shows the supply curve (S + Tax) shifted up by the amount of the proposed tax ($30 per windbreaker). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for windbreakers. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Windbreakers Market 55 S+Tax Supply 50 Tax Revenue Deadweight Loss PRICE (Dollars per windbreaker) 6 8 6 8 8 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Windbreakers) Instead, suppose the government taxes bucket hats. The following graph shows the annual supply and demand for this good, as well as the supply curve shifted up by the amount of the proposed tax ($30 per hat).Instead, suppose the government taxes bucket hats. The following graph shows the annual supply and demand for this good, as well as the supply curve shifted up by the amount of the proposed tax ($30 per hat). On the following graph, do for bucket hats the same thing you did previously on the graph for windbreakers. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for bucket hats. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. (?) Bucket Hats Market BD 55 S+ Tax Supply Tax Revenue Deadweight Loss PRICE (Dollars per hat) 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Hats) Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. Tax Revenue Deadweight Loss If the Government Taxes... (Dollars) (Dollars) Windbreakers at $30 per windbreaker Bucket hats at $30 per hat Suppose the government wants to tax the good that will generate more tax revenue at a lower welfare cost. In this case, it should tax because, all else held constant, taxing a good with a relatively elastic demand generates larger tax revenue and smaller deadweight loss.10. Understanding marginal and average tax rates Using the information provided on the income tax systems in two hypothetical countries, Country A and Country B, complete the following tables. Country A Country B Taxable Income Tax Liability Taxable Income Tax Liability "Dollars) (Dollars) ( Dollars) (Dollars) 20,000 1,000.00 20,000 $6,000 40,000 8,000.00 40,000 $10,000 60,000 24,000.00 60,000 $12,000 Complete the following table by deriving the marginal tax rates in the income ranges of $20,000 to $40,000 and $40,000 to $60,000 for each country. Taxable Income Range Country A Marginal Tax Rate Country B Marginal Tax Rate (Dollars) (Percent) (Percent) 20,000 to 40,000 40,000 to 60,000 Complete the following table by deriving the average tax rates at each income level for each country. Taxable Income Country A Average Tax Rate Country B Average Tax Rate (Dollars) (Percent) (Percent) 20,000 40,000 60,000 Complete the following table by indicating whether each country has a progressive, proportional, or regressive income tax system. Progressive Proportional Regressive Country A O O O Country B O O O11. 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. With no tax, the equilibrium quantity is 100 packs. The following table shows the equilibrium quantity produced and sold in the market for various per unit taxes. Tax Quantity (Dollars per pack) (Packs) 0 100 4 80 50 10 50 12 40 16 20 20 0 Suppose the government imposes a $4-per-pack tax on suppliers. At this tax amount, the equilibrium quantity of cigarettes is packs, and the government collects $ in tax revenue. Now calculate the government's tax revenue if it sets a tax of $0, $4, $8, $10, $12, $16, or $20 per pack. 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. 20 A Laffer Curve 14 12 10 TAX RATE ( Dollars per pack) 80 160 240 320 400 480 560 640 720 TAX REVENUE (Dollars) Suppose the government is currently imposing a $12-per-pack tax on cigarettes. True or False: The government can raise its tax revenue by increasing the per-unit tax on cigarettes. True False