Elasticity and Government Excise Tax Revenue Activity 21

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Elasticity and Government Excise Tax Revenue Activity 21

Elasticity and Government Excise Tax Revenue Activity 21

Remember this exercise: with the elasticity of demand for the good similar to the

Remember this exercise: with the elasticity of demand for the good similar to the elasticity of supply. 50 What is the equilibrium price? $. 25 . 45 What is the equilibrium quantity? 200 . 40. 35 S . 30 What is the consumer surplus at equilibrium? ((. 45 -. 25)x 200)/2 = 20 What is the producer surplus at equilibrium? ((. 25 -. 05)x 200)/2 = 20 . 25. 20. 15 Assuming this is a competitive market, In what way is this efficient? Consumer and Producer Surplus are equal and at their maximum MSB = MSC D . 10. 05 50 100 150 200 250 300

Now let’s put that tax in place What is the new equilibrium price? $.

Now let’s put that tax in place What is the new equilibrium price? $. 325 What is the new equilibrium quantity? 125 . 50. 45 S 1 . 40. 35 S . 30. 25. 20. 15 D . 10. 05 50 100 150 200 250 300 What is the consumer surplus at the new equilibrium? . 45 -. 32. 5=. 125 (. 125 x 125)/2 = $9. 375 What is the producer surplus at the new equilibrium? . 175 -. 05=. 125 (. 125 x 125)/2 = $9. 375 Assuming this is a competitive market, In what way is this efficient? It’s not!!! Although consumer and producer surplus are equal, 75 units of output are lost

Total Revenue or Px. Q = $50. 00 (. 25 x 200) at initial

Total Revenue or Px. Q = $50. 00 (. 25 x 200) at initial equilibrium. 50. 45. 40 supply . 35. 30. 25. 20. 15 demand Total revenue received by sellers At equilibrium . 10. 05 50 100 150 200 250 300

After Government Excise Tax of $. 15, total revenue(. 325 x 125)=$40. 625. 50

After Government Excise Tax of $. 15, total revenue(. 325 x 125)=$40. 625. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25 $40. 625 Total Revenue available after tax is levied; . 20 $. 25 x 75 = 18. 75 . 15. 10 lost revenue to the sellers is $50 - 21. 875 = $28. 125. 05 Less the $9. 375 tax paid = $18. 75 50 100 demand uncollected 150 200 250 300

Government Excise Tax Revenue = $18. 75 (. 15 x 125). 50 S 1

Government Excise Tax Revenue = $18. 75 (. 15 x 125). 50 S 1 supply+tax . 45. 40. 35. 30. 25 Consumers pay. 075 in higher prices (. 325 -. 25) supply Or a total of$9. 375 of the tax Government Excise Tax Revenue = $18. 75 ((. 325 -. 175)x 125) or (. 15 x 125) . 20. 15 Sellers pay. 075 in the form of lost revenue (. 25 -. 175) . 10 Or a total of $9. 375 of the tax demand . 05 50 100 150 200 250 300

PART A (Figure 21. 3) Relatively Inelastic Demand to Supply. 50 S 1 supply+tax

PART A (Figure 21. 3) Relatively Inelastic Demand to Supply. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25. 20 demand . 15. 10. 05 50 100 150 200 250 300

PART A (Figure 21. 3) Relatively Inelastic Demand to Supply. 50 S 1 supply+tax

PART A (Figure 21. 3) Relatively Inelastic Demand to Supply. 50 S 1 supply+tax . 45. 40 supply . 35. 30 $52. 5 Total Revenue available after tax is levied; . 25 revenue gained is. 20 $52. 0 - 50 = $2. 5 lost revenue to the sellers is. 15 $50 - 30 = $20. 00 Less the $7. 5 tax paid = $12. 5. 10. 05 demand $. 25 x 75 = 12. 5 uncollected 50 100 150 200 250 300

PART A (Figure 21. 3) Relatively Inelastic Demand to Supply. 50. 45. 40 S

PART A (Figure 21. 3) Relatively Inelastic Demand to Supply. 50. 45. 40 S 1 supply+tax Consumers pay. 10 in higher prices (. 35 -. 25) Or a total of$15. 00 of the tax supply . 35. 30. 25 Government Excise Tax Revenue = $22. 50 ((. 35 -. 20)x 150) or (. 15 x 150) . 20. 15 Sellers pay. 075 in the form of lost revenue (. 25 -. 175) demand Or a total of $7. 50 of the tax. 10. 05 50 100 150 200 250 300

PART B (Figure 21. 4) Relatively Elastic Demand to Supply. 50 S 1 supply+tax

PART B (Figure 21. 4) Relatively Elastic Demand to Supply. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25 demand . 20. 15. 10. 05 50 100 150 200 250 300

PART B (Figure 21. 4) Relatively Elastic Demand to Supply. 50 S 1 supply+tax

PART B (Figure 21. 4) Relatively Elastic Demand to Supply. 50 S 1 supply+tax . 45. 40. 35 Consumers pay. 05 in higher prices (. 30 -. 25) Or a total of$5. 00 of the tax supply . 30. 25 Government Excise Tax Revenue = $15. 00. 20 ((. 30 -. 15)x 150) or (. 15 x 100) demand . 15 Sellers pay. 10 in the form of lost revenue (. 25 -. 15) . 10 Or a total of $10 of the tax. 05 50 100 150 200 250 300

PART B (Figure 21. 4) Relatively Elastic Demand to Supply. 50 S 1 supply+tax

PART B (Figure 21. 4) Relatively Elastic Demand to Supply. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25. 20 $30. Total Revenue demand available after tax is levied; . 15 lost revenue to the. 10 sellers is $50 - 15 = $35. 05 Less the $10 tax paid = $25 50 100 $. 25 x 100 = $25 uncollected 150 200 250 300

PART C (Figure 21. 5) Perfectly Inelastic Demand. 50 S 1 supply+tax . 45.

PART C (Figure 21. 5) Perfectly Inelastic Demand. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25. 20. 15. 10 demand . 05 50 100 150 200 250 300

PART C (Figure 21. 5) Perfectly Inelastic Demand. 50 Consumers pay. 15 in higher

PART C (Figure 21. 5) Perfectly Inelastic Demand. 50 Consumers pay. 15 in higher prices (. 40 -. 25) S 1 supply+tax . 45 Or a total of$30. of the tax. 40. 35. 30 supply Government Excise Tax Revenue = $30 ((. 40 -. 25)x 200) or (. 15 x 200) . 25. 20 Sellers pay 0 in the form of lost revenue . 15 Or $0 of the tax . 10. 05 $80 Total Revenue available after tax is levied; demand 0 is uncollected 50 100 150 200 250 300

PART D (Figure 21. 6) Perfectly Elastic Demand. 50 S 1 supply+tax . 45.

PART D (Figure 21. 6) Perfectly Elastic Demand. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25 demand . 20. 15. 10. 05 50 100 150 200 250 300

PART D (Figure 21. 6) Perfectly Elastic Demand. 50 S 1 supply+tax . 45.

PART D (Figure 21. 6) Perfectly Elastic Demand. 50 S 1 supply+tax . 45. 40. 35 Consumers pay 0 in higher prices Or a total of $0 of the tax supply . 30. 25. 20. 15. 10 demand Government Excise Tax Revenue = $7. 5 ((. 25 -. 15)x 50) Sellers pay $7. 5 in the form of lost revenue or (. 15 x 50) ((. 25 -. 10)x 50). 05 Or a total of all $7. 5 of the tax 50 100 150 200 250 300

PART D (Figure 21. 6) Perfectly Elastic Demand. 50 S 1 supply+tax . 45.

PART D (Figure 21. 6) Perfectly Elastic Demand. 50 S 1 supply+tax . 45. 40 supply . 35. 30. 25. 20. 15. 10. 05 $12. 5 Total Revenue available after tax is levied; lost revenue to the sellers is $50 - 5 = $45 Less the $5 tax paid = $37. 5 50 demand $. 25 x 150 = $37. 5 uncollected 100 150 200 250 300

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