Question

If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would

Answer 1

Lowering the per-unit tax rate results in a decrease in the price for buyers and an increase in the revenue for sellers, and can potentially lead to an increase in market quantity sold.

Step-by-step explanation:

When the government changed the per-unit tax from $5.00 to $2.50, there is a variation in the burden of the tax that the buyers and sellers experience. Initially, with a higher tax rate, the buyers might be paying a significantly higher price and sellers might be receiving less. However, when the tax is decreased, the price paid by buyers is reduced, and the price received by sellers is increased, thereby potentially increasing the quantity sold in the market. The overall effect of a decreased tax rate often results in lower prices for consumers and higher revenue for sellers, which in turn may lead to an expansion in the quantity traded in the market.

Answer 2

Answer: Decrease government revenue and decrease deadweight loss from the tax.

Step-by-step explanation:

Decrease gov rev and decrease deadweight loss from the tax.

At AB, the government revenue will be:

= Quantity × Tax rate

= 1 × 5

= 5

The deadweight loss will be:

Deadweight Loss= 0.5 × Change in quantity × Change in Price

= 0.5 × (9-4) × (2-1)

= 0.5 × 5 × 1

= 2.5

At CD,

the government revenue will be:

= 1.5 × 2.5

= 3.75

The deadweight loss will be:

= 0.5 × (7.5-5) × (2-1.5)

= 0.5 × 2.5 × 0.5

= 0.625

Based on the calculation above, both the government revenue and the deadweight loss decreases.