Exhibit 20-6

-Refer to Exhibit 20-6.Suppose the three equilibrium quantities are 700,800,and 900,and the two other equilibrium prices are $2.20 and $2.75.What is the change in total revenue when a per-unit tax shifts S₁to S₂,given that D₂ is the relevant demand curve?

Question

Exhibit 20-6
Exhibit 20-6 -Refer to Exhibit 20-6.Suppose the three equilibrium quantities are 700,800,and 900,and the two other equilibrium prices are $2.20 and $2.75.What is the change in total revenue when a per-unit tax shifts S1to S2,given that D2 is the relevant demand curve? A) $260 B) -$260 C) $900 D) $700 E) -$200

Exhibit 20-6 -Refer to Exhibit 20-6.Suppose the three equilibrium quantities are 700,800,and 900,and the two other equilibrium prices are $2.20 and $2.75.What is the change in total revenue when a per-unit tax shifts S<sub>1</sub>to S<sub>2</sub>,given that D<sub>2</sub> is the relevant demand curve? A) $260 B) -$260 C) $900 D) $700 E) -$200

-Refer to Exhibit 20-6.Suppose the three equilibrium quantities are 700,800,and 900,and the two other equilibrium prices are $2.20 and $2.75.What is the change in total revenue when a per-unit tax shifts S₁to S₂,given that D₂ is the relevant demand curve?

Quizplus · Accepted Answer

The new equilibrium quantity sold is 800 (the intersection of D₂ and S₂). The new equilibrium price paid by buyers is $2.75 (the height of D₂ at the quantity of 800). The new equilibrium price received by sellers is $2.20 (the height of S₂ at the quantity of 800). The per-unit tax creates a wedge between the price paid by buyers and the price received by sellers, which is equal to the amount of the tax ($0.55). Under the new equilibrium, buyers pay $2.75 per unit but sellers only receive $2.20 per unit, due to the tax. Therefore, the change in total revenue is (800 units x $2.20 received by sellers) - (800 units x $2.75 paid by buyers) - (800 units x $0.55 tax), which equals -$260. Therefore, the correct answer is B.

Exhibit 20-6 -Refer to Exhibit 20-6.Suppose the Three Equilibrium Quantities Are 700,800,and