Excise Taxes in AP Microeconomics

Summary: Activity 21 from Advanced Placement Economics is discussed with a challenge.

AP Microeconomics assumes that the government places the tax on the producer.  The supply curve will shift to the left by an amount determined by the elasticity of the demand curve.  In Advanced Placement Economics, available from the Council for Economic Education, Activity 21, Lesson 4, contains an outstanding activity. 

In this activity, who actually pays the tax is discussed and calculated.  I would like to offer a challenge to all who have used this activity.  The challenge is, "Explain why the area of the dead-weight loss  does not explain the uncollected revenue loss in answer (I)? 

I have tried at various times over the past eight years to explain the reasoning given in the answer key, but with no sucess. 

Advanced Placement Economics is now in its third edition.  My personal feeling is that the workbook can stand alone without a textbook.  A skillful teacher could have students use the web to read about AP Economic concepts then complete the workbook assignments.  If your school district is cutting back on the purchase of textbooks to save money, consider adopting this workbook.  Of course, one can find all of the workbook and more on Virtual Economics.

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, Iowa. He is an EconEdLink.org author, and also publishes the Mikeroeconomics.  Mr. Fladlien is a frequent reader of Marginal Revolution and Greg Mankiw's Blog.  As a finalist for the ISEA Teacher of the Year in 2008, he believes that students learn by being actively involved in the learning.