How do you find tax revenue on a graph in economics?

The tax revenue is given by the shaded area, which we obtain by multiplying the tax per unit by the total quantity sold Qt. The tax incidence on the consumers is given by the difference between the price paid Pc and the initial equilibrium price Pe.

Which curve shows relationship between tax and revenue?

The Laffer Curve
The Laffer Curve is a theory formalized by supply-side economist Arthur Laffer to show the relationship between tax rates and the amount of tax revenue collected by governments. The curve is used to illustrate the argument that sometimes cutting tax rates can result in increased total tax revenue.

How do you calculate the tax revenue?

How to Calculate Tax Revenue

1. Research the tax you are analyzing.
2. Research the tax base upon which the tax is being applied.
3. Multiply the legally defined tax rate by the appropriate tax base.
4. Add each tax payment made during the legally defined tax collection period to arrive at total tax revenue.

How do you calculate after tax revenue?

To calculate the after-tax income, simply subtract total taxes from the gross income. For example, let’s assume an individual makes an annual salary of $50,000 and is taxed at a rate of 12%. It would result in taxes of $6,000 per year. Therefore, this individual’s after-tax income would be $44,000.

How do you calculate tax incidence on a graph?

To calculate tax incidence, we first have to find out whether the tax shifts the supply or the demand curve. Next, we can determine in which direction and by how much the curve shifts, which finally allows us to find the new equilibrium and measure the tax incidence.

What is meant by tax revenue?

Tax revenue is the result of the application of a tax rate to a tax base. Total tax revenue as a percentage of GDP indicates the share of the country’s output collected by the government through taxes. Tax revenue can be regarded as one measure of the degree to which the government controls the economy’s resources.

What is total tax revenue?

Total tax revenue as a percentage of GDP indicates the share of a country’s output that is collected by the government through taxes. It can be regarded as one measure of the degree to which the government controls the economy’s resources.

How is tax revenue calculated?

Tax revenue is the dollar amount of tax collected. For an excise (or, per unit) tax, this is quantity sold multiplied by the value of the per unit tax. Tax revenue is counted as part of total surplus. Some of the producer surplus from before the tax will now be part of tax revenue.

What happens on a graph for a good when a tax is imposed?

If the government increases the tax on a good, that shifts the supply curve to the left, the consumer price increases, and sellers’ price decreases. A tax increase does not affect the demand curve, nor does it make supply or demand more or less elastic.

What is the tax wedge formula?

Tax Wedge = (Average Total Labor Costs – Net Take – Home pay) / Average Total Labor Costs.

How do you calculate tax revenue?

What does the Laffer Curve state?

The Laffer Curve states that if tax rates are increased above a certain level, then tax revenues can actually fall because higher tax rates discourage people from working. Equally, the Laffer Curve states that cutting taxes could, in theory, lead to higher tax revenues.

What happens when tax revenue decreases?

When the government decreases taxes, disposable income increases. That translates to higher demand (spending) and increased production (GDP). So, the fiscal policy prescription for a sluggish economy and high unemployment is lower taxes. Spending policy is the mirror image of tax policy.