Answers to Mankiws Principles of Economics Exercises 3rd Edition English Western Economics Study Questions Answers 8SOLUTIONS TO TEXT PROBLEMSQuick Quizzes1 Figure 1 shows the supply and demand curves

the tax, the market would be at equilibrium with quantity Q1 and price P1. With the tax, the price to buyers rises to PB, the price received by sellers declines to PS, and the equilibrium quantity falls to Q2. The deadweight loss is the area between the supply and demand curves, from Q1 to Q2 and from P1 to PB. The tax revenue is the rectangle with height PB-PS and width Q2.3. A tax on a good will have a larger deadweight loss when the demand for the good is more elastic and the supply is less elastic. This is because a more elastic demand means that buyers are more responsive to changes in price, so the tax will cause a larger decline in quantity demanded. A less elastic supply means that sellers are less responsive to changes in price, so the tax will cause a larger decline in quantity supplied. Both of these factors contribute to a larger deadweight loss.4. A tax on a good will have a larger deadweight loss when the tax rate is higher. This is because as the tax rate increases, the distortion to incentives becomes greater and the decline in quantity traded becomes larger. The deadweight loss increases as the square of the tax rate, so a small increase in the tax rate can have a large impact on the deadweight loss.5. A tax on a good will raise more revenue when the demand and supply are less elastic. This is because when the demand and supply are less elastic, buyers and sellers are less responsive to changes in price, so the tax causes a smaller decline in quantity traded. This means that the tax revenue will be larger, since the tax is applied to each unit of the good sold