Relationship between tax revenues, deadweight loss, and demand elasticity
The government is considering levying a tax of $120 per unit on suppliers of either pickleball paddles or metro cards. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for pickleball paddtes is shown by Dp (on the first graph), and the demand for metro cards is shown by DM (on the second graph). Suppose the government taxes pickleball paddles. 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 ( $120 per paddle). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for pickleball paddies. Then use th black triangle (plus symbols) to shade the area that represents the deadweight lass associated with the tax. Instead, suppose the povernment taxes metro cards. 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 (\$120 per card). On the following graph, do for metro cards the same thing you did previously on the graph for pickleball paddles. Use the green rectangie (triangle symbois) to shade the area that represents tax revenue for metro cards. Then, use the black triangle (plus symbols) to shade the area that represents the deodiveight loss associated with the tax. Complete the following table with the tax revenue collected and deadweight loss caused by each of the tax proposals. 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 Iarger tax revenue and smaller deadweight loss: Suppose the government wants to tax the good that will generate more tax revenue at a because, all else held constant, taxing a good with a relatively are cost. In this case, it should tax etostic demand generatas broer tox revenue and smaller deadwelght loss. Int wants to tox the good that will generate more tax revenue at a lower welfare cost. In this case, it should tax bectuse, alf else held constant, taxing o good with a relatively elastic demand generates larger tax revenue and smaller deadweight loss