Figure 8-2
-Refer to Figure 8-2.Suppose the government changed the per-unit tax on this good from $3.00 to $1.50.Compared to the original tax rate,this lower tax rate would

Question

Figure 8-2 
-Refer to Figure 8-2.Suppose the government changed the per-unit tax on this good from $3.00 to $1.50.Compared to the original tax rate,this lower tax rate would

Quizplus · Accepted Answer

When the per-unit tax on this good is reduced from $3.00 to $1.50, the supply curve shifts down by $1.50, as shown in Figure 8-3. As a result, the price paid by buyers falls from $10.00 to $9.50, while the price received by sellers falls from $7.00 to $5.50. The quantity sold increases from 4.00 to 4.50.

Compared to the original tax rate, this lower tax rate decreases tax revenue because the tax is now collecting only $1.50 per unit, which is less than the original $3.00 per unit tax. At the same time, the deadweight loss from the tax decreases because the quantity sold increases from 4.00 to 4.50, reducing the inefficiencies caused by the tax.

Figure 8-2 -Refer to Figure 8-2.Suppose the Government Changed the Per-Unit Tax