Question Set 1: Using the Pigouvian Tax Graph below, answer the following:
1. What is the market problem that a Pigouvian tax is supposed to resolve?
2. What is an example of a good that might exhibit this behavior (not from the website)?
3. What is an example of a good that has a Pigouvian tax on it?
4. On the graph, use the letters to represent the area of relevant parts of the graph:
1. What is the pre-tax consumer surplus?
2. What is the post-tax consumer surplus?
3. What is the pre-tax producer surplus?
4. What is the post-tax producer surplus?
5. What is the government revenue from the tax?
6. What is the change in total surplus due to the tax?
7. What is the term for this loss of surplus?
8. What are the social benefits of the tax?
9. In the good you mention above, what might this social benefit represent?
10. From the graph, the comparison of two areas dictates whether or not to implement the tax? What is this decision?
11. How do we know (or learn about) the size of deadweight loss and social benefit?
Question Set 2: Using the Pigouvian Subsidy Graph to Below, answer the following.
1. What is the market problem that a Pigouvian subsidy is supposed to resolve?
2. What is an example of a good that might exhibit this behavior (not from the website)?
3. What is an example of a good that has a Pigouvian subsidy on it?
4. On the graph, use the letters to represent the area of relevant parts of the graph:
1. What is the pre-subsidy consumer surplus?
2. What is the post-subsidy consumer surplus?
3. What is the pre-subsidy producer surplus?
4. What is the post-subsidy producer surplus?
5. What is the government cost of the subsidy?
6. What is the change in total surplus due to the subsidy?(Hint: it is negative)
7. What is the term for this loss of surplus?
8. What are the social benefits of the subsidy?
9. In the good you mention above, what might this social benefit represent?
10. From the graph, the comparison of two areas dictates whether or not to implement the subsidy? What is this decision?
11. How do we know (or learn about) the size of deadweight loss and social benefits?