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2228 Application: The Costs of Taxation
Figure 8-26
26. Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?
27. Refer to Figure 8-26. How much is consumer surplus at the market equilibrium?
Application: The Costs of Taxation 2229
28. Refer to Figure 8-26. How much is producer surplus at the market equilibrium?
29. Refer to Figure 8-26. How much is total surplus at the market equilibrium?
30. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price
will consumers pay for the good after the tax is imposed?
2230 Application: The Costs of Taxation
31. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price
will sellers receive for the good after the tax is imposed?
32. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many
units of this good will be bought and sold after the tax is imposed?
Application: The Costs of Taxation 2231
33. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much
is consumer surplus after the tax is imposed?
34. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much
is producer surplus after the tax is imposed?
35. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much
tax revenue is collected after the tax is imposed?
2232 Application: The Costs of Taxation
36. Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from
$3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay
the same?
37. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much
is total surplus after the tax is imposed?
Application: The Costs of Taxation 2233
38. Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much
is the deadweight loss from this tax?
Figure 8-27
2234 Application: The Costs of Taxation
39. Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and
Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each
market, the tax will create a larger deadweight loss in which market? Explain.
Application: The Costs of Taxation 2235
Figure 8-28
40. Refer to Figure 8-28. Suppose that Market A is characterized by Demand 1 and Supply 1, and
Market B is characterized by Demand 1 and Supply 2. If an identical tax is imposed on each
market, the tax will create a larger deadweight loss in which market? Explain.
2236 Application: The Costs of Taxation
41. Provide several examples of important taxes on labor in the United States. For a typical worker,
what is the marginal tax rate on labor income once all the labor taxes are summed?
Application: The Costs of Taxation 2237
42. Is the United States’ labor supply more inelastic or more elastic? Briefly summarize the
competing theories.
2238 Application: The Costs of Taxation
43. The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy
drinks or a tax on milk have a larger deadweight loss? Explain.
44. Suppose that the market for product X is characterized by a typical, downward-sloping, linear
demand curve and a typical, upward-sloping, linear supply curve. Suppose the price elasticity of
supply is 0.7. Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of
the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is
1.5?
Application: The Costs of Taxation 2239
45. Suppose the demand curve and the supply curve in a market are both linear, and suppose the price
elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price
elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?
46. Suppose that the market for product X is characterized by a typical, downward-sloping, linear
demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a
deadweight loss of $200, how large would be the deadweight loss from a $4 tax per unit?
47. Suppose that the market for product X is characterized by a typical, downward-sloping, linear
demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a
deadweight loss of $200, how large would be the deadweight loss from a $6 tax per unit?
2240 Application: The Costs of Taxation
48. Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit
results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per
unit?
49. Suppose the demand curve and the supply curve in a market are both linear. To begin, there was
a $5 tax per unit, and the $5 tax resulted in a deadweight loss of $1,500. Now, the tax per unit is
higher, with the higher tax resulting in a deadweight loss of $6,000. What is the amount of the
new tax per unit?
Application: The Costs of Taxation 2241
Figure 8-29
50. Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax
revenues?
2242 Application: The Costs of Taxation
51. Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to the
deadweight loss from the tax?
52. Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which
would you choose and why?
53. Describe the Laffer curve.
