Question

chapter 08: aplia homework
the government is considering levying a tax of $100 per unit on suppliers of either leather jackets or smartphones. the supply curve for each of these two goods is identical, as you can see on each of the following graphs. the demand for leather jackets is shown by dₗ (on the first graph), and the demand for smartphones is shown by dₛ (on the second graph).
suppose the government taxes leather jackets. the following graph shows the annual supply and demand for this good. it also shows the supply curve (s + tax) shifted up by the amount of the proposed tax ($100 per jacket).
on the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for leather jackets. then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
leather jackets market
price (dollars per jacket)
quantity (jackets)

Explanation:

Step1: Identify tax - revenue area

Tax revenue is the product of the tax per unit and the quantity sold after the tax. On a supply - demand graph, it is the rectangular area between the price consumers pay and the price producers receive, with a width equal to the quantity sold after the tax.

Step2: Identify dead - weight loss area

Dead - weight loss is the loss of economic efficiency that occurs when the equilibrium is not achieved due to the tax. It is the triangular area between the original supply and demand curves and the new equilibrium quantity after the tax.

Answer:

To shade the tax - revenue area: Find the intersection of the demand curve $D_{L}$ and the $(S + Tax)$ curve to get the quantity sold after the tax ($Q_{1}$). Then, find the price consumers pay ($P_{C}$) on the $(S + Tax)$ curve at $Q_{1}$ and the price producers receive ($P_{P}$) on the supply curve at $Q_{1}$. Shade the rectangle with vertical sides at $Q = 0$ and $Q = Q_{1}$, and horizontal sides at $P = P_{P}$ and $P = P_{C}$ using the green rectangle (triangle symbols).
To shade the dead - weight loss area: The dead - weight loss is the triangle formed by the original supply and demand curves and the vertical line at $Q_{1}$. Shade this triangle using the black triangle (plus symbols).