Suppose the government is thinking about levying a per-unit tax of $50 on firms supplying either ski passes or subway tickets. The supply curves for both of the two goods are identical, as given by the following graphs. The demand for ski passes is given by DP (on the first graph), and the demand for subway tickets is given by DT (on the second graph).Suppose the government decides to tax ski passes. The following graph plots the yearly demand and supply for this good. It also plots another supply curve (S+Tax) shifted upward by the proposed tax amount ($50 per pass).
On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for ski passes. Then use the black triangle (plus symbols) to shade the area that represents the deadweight loss associated with the tax.
Ski Passes Market
Tax Revenue
Deadweight Loss
0
50
100
150
200
250
300
350
400
450
500
550
600
120
110
100
90
80
70
60
50
40
30
20
10
0
PRICE (Dollars per pass)
QUANTITY (Passes)
D
P
Supply
S+Tax
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