Scenario 12-1
Skip places a $20 value on a bottle of wine, and Walt places a $17 value on it. The equilibrium price for a bottle of wine is $15.
-Refer to Scenario 12-1.Suppose the government levies a tax of $1 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $16.How much tax revenue is collected?
A) $0
B) $1
C) $2
D) $4

Question

Quizplus · Accepted Answer

The government levies a tax of $1 on each bottle of wine, so the price that buyers pay for a bottle of wine is $1 higher than before. As a result, the new equilibrium price of a bottle of wine is $16, which is $1 more than the previous equilibrium price. 
Since the tax collects $1 for each bottle of wine sold, the total tax revenue collected is equal to the number of bottles sold times the tax per bottle. The quantity demanded for wine would decrease due to tax, so we can assume that the quantity sold decreases. We do not know the numerical value of the decrease in quantity sold, so we cannot determine the exact amount of tax revenue collected. However, we do know that at least $2 of the tax ($1 per bottle times a decrease in quantity sold by two bottles or more) will be collected, so the only valid choice is C, $2.

Scenario 12-1 Skip Places a $20 Value on a Bottle of Wine