Chapter 7: Taxes - Rates and Revenue

Question 1

What is revenue for a firm denoted by?

Answer 1

PXQ

Question 2

What is revenue for a tax denoted by?

Answer 2

tax rate X Q

Question 3

What is a tax rate?

Answer 3

• amount of tax people are required to pay per unit of whatever is being taxed

Question 4

What will doubling the excise tax amount to a good or service do to revenue? (2)

Answer 4

• it will not double the amount of revenue collected, because the tax increase will reduce quantity of good or service transacted
• in some cases, raising the tax rate may reduce the amount of revenue the government collects

Question 5

Revenue from an excise tax graph

Answer 5

Question 6

Tax rates and revenue graph

Answer 6

Question 7

What is the Laffer Curve? (3)

Answer 7

• extreme tax rates (0% and 100%) means no revenue raised
• must be some maximum point in between
• ronald reagan used this to argue that his proposed cuts in income tax rates would not reduce the fed. govt. revenue