Inefficiency created by tax in economic and quantitative analysis

ECONOMIC AND QUANTITATIVE ANALYSIS ECONOMIC AND QUANTITATIVE ANALYSIS 6 6 ECONOMIC AND QUANTITATIVE ANALYSIS Economic and Quantitative Analysis Authors Note: Contents Answer 1: 2 Answer 2: 2 Answer 3: 4 References: 6 Answer 1: The demand and supply diagram below shows the inefficeincy created by tax in an efficeint market. Size of DWL changes shown in the diagram below: Part d: In

Running head: ECONOMIC AND QUANTITATIVE ANALYSIS
Economic and Quantitative Analysis
Name of the Student:
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Authors Note:

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ECONOMIC AND QUANTITATIVE ANALYSIS
Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................2
Answer 3:.........................................................................................................................................4
References:......................................................................................................................................6

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ECONOMIC AND QUANTITATIVE ANALYSIS
Answer 1:
The demand and supply diagram below shows the inefficeincy created by tax in an efficeint
market.
As can be seen that the intersection of D with S supply curve prior to tax has an equilibrium
position of 5 units of product sold at a price of 3. However, imposition of tax irrespective of the
person who pays it will make the market smaller as the price paid by consumer increases and the
price received by the producer decreases. With imposition of tax “T” the equilibrium position is
3.75 units of product at a price of 3.5 (Kanamura, 2018).
Answer 2:
As can be seen from the diagram below that greater the elasticity of supply and demand the
greater the deadweight loss of a tax.

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ECONOMIC AND QUANTITATIVE ANALYSIS
This is because with imposition of tax would lead to significant reduction in demand if the
elasticity of demand and supply is greater resulting in greater deadweight loss of tax.
Labor supply and demand diagram provided below to show the effects of tax on unemployment.
As can be seen from the above that unemployment increases due to labor tax as it places a wedge
between the wage paid by a firm and the wage received by the labor.
Size of DWL changes shown in the diagram below:

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ECONOMIC AND QUANTITATIVE ANALYSIS
Part d:
In a market where the unemployment rate is nil and the labor are in position to negotiate their
wage the labor supply will be elastic. Thus, in a situation where labor are in a perfectly
competitive market and can negotiate their wages with the firms the labor supply would be
elastic (Frisch, 2019).
Answer 3:
Pat a:
The diagram shows below deadweight loss caused by tax grow larger.

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ECONOMIC AND QUANTITATIVE ANALYSIS
Part b:
As can be seen from the above that as the size of tax grows larger first the revenue will rise but
eventually the revenue will fall due to imposition of tax.

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ECONOMIC AND QUANTITATIVE ANALYSIS
References:
Frisch, R. (2019). More Pitfalls in Demand and Supply Curve Analysis. The Quarterly Journal
Of Economics, 57(7), 749. doi: 10.2307/1883550
Kanamura, T. (2018). A Supply and Demand Based Volatility Model for Energy Prices - The
Relationship between Supply Curve Shape and Volatility. SSRN Electronic Journal, 3(3),
13-21. doi: 10.2139/ssrn.926794