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Suppose the government is thinking about levying a perunit tax of $60 on firms supplying either ski passes or subway tickets. The supply curves for
Suppose the government is thinking about levying a perunit tax of $60 on firms supplying either ski passes or subway tickets. The supply curves for both of the two goods are identical, as given by the following graphs. The demand for ski passes is given by D}: (on the first graph), and the demand for subway tickets is given by Dr (on the second graph). Suppose the government decides to tax ski passes. The following graph plots the yearly demand and supply for this good. It also plots another supply curve (S + Tax) shifted upward by the proposed tax amount ($60 per pass). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for ski passes. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax. Ski Passes Market 120 110 Supply S+Tax 100 Tax Revenue 90 80 Deadweight Loss 70 60 PRICE (Dollars per pass) DP 50 40 30 20 10 0 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Passes) Suppose the government decides to tax subway tickets, instead. The following graph plots the yearly supply and demand curves for this good, as well as another supply curve shifted upward by the proposed tax amount ($60 per ticket). On the following graph, perform the same exercise that you did on the graph for ski passes. Use the green rectangle (triangle symbols) to shade the area that represents tax revenue for subway tickets. Then, use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.PRICE (Dollars per ticket) 120 110 100 90 80 70 60 50 4U 3U 20 10 0 50 Subway Tickets Market 100 150 200 250 300 350 400 450 500 550 600 QUANTITY (Tickets) Tax Revenue 3-4:: Deadweig ht Loss Complete the following table by entering the tax revenue collected and deadwelght loss caused by each of the two tax proposals. Tax Revenue Deadweight Loss If the Government Taxes... (Dollars) (Dollars) Ski passes at $60 per pass Subway tickets at $60 per ticket If the goal of the government is to impose the tax that is more efficient, it should tax V . (Hint: Assume the administrative burdens of the two tax laws are equal.)
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