Suppose you are a politician that wants to tax a product. You are hoping to inc…

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Wize University Microeconomics Textbook > Efficiency

CS and PS with Taxes

4 Activities

Suppose you are a politician that wants to tax a product. You are hoping to increase the government's tax revenue as much as possible, while minimizing the deadweight loss. You would prefer to do this on goods with __________ elasticities of demand and __________ elasticities of supply. 

More CS and PS with Taxes Questions:

Concept Clarifier: Tax

The demand and supply for an unhealthy energy drink are given in the following diagram. Prices are in dollars and quantities are in hundreds of units. The government imposes a $1 tax on the purchase of a unit of this energy drink, paid for by the consumers at the time of the transaction. 
Buyers pay $0.25
 tax on each energy drink
Sellers pay $0.75
 tax on each energy drink

Cigarettes have a downward sloping demand and an upward sloping supply curve. When the tax is increased from $4 per pack to $6 per pack, what would happen to the government's tax revenue?
 

Practice: Deadweight Loss

Yasmine pays Larry $40 per week for housekeeping. The government levies a $5 tax on housekeeping and Larry raises his price to $45. Yasmine continues to hire him once a week at this higher price. What is the change in producer surplus, change in consumer surplus, and deadweight loss? 
 
 

The deadweight loss from taxation can be determined by:

Practice: Deadweight Loss

Yasmine pays Larry $40 per week for housekeeping. The government levies a $5 tax on housekeeping and Larry raises his price to $45. Yasmine continues to hire him once a week at this higher price. What is the change in producer surplus, change in consumer surplus, and deadweight loss? 
 
 

Practice: Tax Burden

The demand and supply for an unhealthy energy drink are given in the following diagram. Prices are in dollars and quantities are in hundreds of units. The government imposes a $1 tax on the purchase of a unit of this energy drink, paid for by the consumers at the time of the transaction. 