Refer to Scenario 19.3 below to answer the question(s) that follow.
SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit.
-Refer to Scenario 19.3. How much total tax revenue is raised by the tax?

Question

Quizplus · Accepted Answer

The total tax revenue raised by the tax can be calculated by finding the quantity of goods sold after the tax is imposed and multiplying it by the tax per unit. Initially, at a price of $10, the quantity demanded (Q) can be found by rearranging the demand equation to Q = 40 - 2P, which gives Q = 20 units when P = $10. After the tax is imposed, the price rises to $12, leading to a new quantity demanded of Q = 40 - 2*12 = 16 units. The tax revenue is then the tax per unit ($2) multiplied by the new quantity sold (16 units), which equals $32.