Figure 18-2

Figure 18-2 shows the widget market before and after an excise tax is imposed. The revenue collected by the tax is ____.
A)$8,000
B)$50,000
C)$100,000
D)$150,000

Question

Figure 18-2

Figure 18-2 shows the widget market before and after an excise tax is imposed. The revenue collected by the tax is ____.
A)$8,000 
B)$50,000 
C)$100,000 
D)$150,000

Quizplus · Accepted Answer

The excise tax is $1 per widget sold. Before the tax is imposed, 100,000 widgets are sold at a price of $1.50 each, generating revenue of $150,000. After the tax is imposed, the price increases to $1.60 per widget, and sales drop to 62,500. Therefore, the total revenue collected by the tax is 62,500 x $1 = $62,500. However, this revenue is in addition to the $1.60 per widget collected by sellers, so the total revenue generated by the market after the tax is (62,500 x $1.60) + $62,500 = $100,000.

Figure 18-2 Figure 18-2 Shows the Widget Market Before and After an and After