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.
large; large
small; large
large; small
small; small
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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 ________ tax on each energy drink
Sellers pay ________ tax on each energy drink
Practice: Tax Burden
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:
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?