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-(Figure and Table: The Market for Taxi Rides)Use Figure and Table: The Market for Taxi Rides.If the government imposes an excise tax of $1 per ride (causing the supply curve to shift upward by that amount),then people who ride taxis will pay _____ of each $1 tax.

Question

Use the following to answer question: 
-(Figure and Table: The Market for Taxi Rides)Use Figure and Table: The Market for Taxi Rides.If the government imposes an excise tax of $1 per ride (causing the supply curve to shift upward by that amount),then people who ride taxis will pay _____ of each $1 tax.

Quizplus · Accepted Answer

When the supply curve shifts upward due to the excise tax, the new equilibrium price rises to $10.50 and the new equilibrium quantity decreases to 5 million rides. Consumers now pay $10.50 per ride, out of which $9 goes to the taxi drivers (who bear the burden of the tax), and $1 goes to the government as tax revenue. Therefore, consumers pay $1 of each $10.50 ride, which is approximately 0.095 or 0.10, or 10%. However, the answer options do not provide this exact choice, but B, 0.50 or 50%, is the closest. Therefore, B is the best answer choice.

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