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Analyzing Revenue from a Corrective Tax Policy
A city is considering a per-unit tax on single-use plastic bags to offset the environmental costs of their production and disposal. Based on the following market data, calculate the total government revenue that would be generated by an economically optimal tax, and compare it to the revenue from a politically proposed 'compromise' tax of $0.05 per bag. Which policy generates more revenue, and why is the resulting change in the quantity of bags sold a critical factor in determining the total revenue?
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The market for a chemical product has a marginal private cost (MPC) represented by the equation MPC = 10 + Q, and a marginal social cost (MSC) represented by MSC = 20 + Q. The market demand (marginal benefit) is P = 50 - Q. If the government imposes a per-unit tax to correct the externality and achieve the socially optimal level of output, what will be the total tax revenue collected?
A government plans to implement one of three policies to reduce income inequality. Each policy involves transferring the same fixed amount of money from a higher-income individual to a lower-income individual. The population has a continuous and wide distribution of incomes. Arrange the following policies in order, from the one that will cause the largest decrease in the overall measure of income inequality to the one that will cause the smallest decrease.
Calculating Revenue from a Corrective Tax
Graphical Representation of Corrective Tax Revenue
When a per-unit tax is imposed to correct for a negative externality, the total government revenue collected is calculated by multiplying the per-unit tax by the original, pre-tax market quantity of the good.
Evaluating a Policy Proposal for a Corrective Tax
The diagram provided illustrates a market with a negative externality, where MSC is the marginal social cost and MPC is the marginal private cost. The government imposes a per-unit tax to shift the market outcome from the private equilibrium (quantity Qp) to the socially optimal equilibrium (quantity Qs). Match the labeled geometric shapes from the diagram with their corresponding economic concepts.
To calculate the total revenue generated by a tax designed to correct a negative externality, one must multiply the per-unit tax amount by the ____.
Analyzing Revenue from a Corrective Tax Policy
Evaluating a Tax Revenue Projection
Graphical Representation of Corrective Tax Revenue