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Instead, suppose the government taxes smartphones. The following graph shows the annual supply and demand for this good, as well as the supply curve shifted
Instead, suppose the government taxes smartphones. 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 ($100 per phone). On the following graph, do for smartphones the same thing you did previously on the graph for leather jackets. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for smartphones. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Smartphones Market 240 220 Supply 200 S+Tax Tax Revenue 180 + 160 140 Deadweight Loss PRICE (Dollars per phone) 120 100 0 50 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Phones) 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) Leather jackets at $100 per jacket Smartphones at $100 per phone 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_ 7 elastic demand generates larger tax revenue and smaller deadweight loss
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