The government is considering levying a tax of $25 per unit on suppliers of eith

Question

The government is considering levying a tax of $25 per unit on suppliers of either jeans or allergy medication. The supply curve for each of these two goods is identical and is shown by S on each of the following graphs. The demand for jeans is shown by D1 (on the top graph), and the demand for allergy medication is shown by D2 (on the bottom graph) Suppose the government were to tax jeans. The following graph shows the annual supply and demand for this g It also shows the supply curve shifted up by the amount of the tax ($25 per unit) On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue Then use the black triangle (X symbols) to shade the area that represents the deadweight loss associated with the tax PRICE (Dollars per pair] 60 Gov't Revenue + Tax 50 Deadweight Loss 40 30 D1 20 10 100 200 300 400 500 600 QUANTITY (Pairs per yearl Help Clear AllL

Explanation / Answer

1. 25*150= 3750

2. DWL = 1/2*(40-15)*(350-150)

=1/2* 25 * 200 = 2500

3. REVENUE = 25* 300= 7500

4. DWL = 1/2 * (55-30) * (350-300) = 1/2 * 25 * 50 = 625

5. ALLERGY MEDICATION

6 HIGH PRICE ELASTICITY

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