Use the figure below to answer the following question(s) .
Figure 4-7

Refer to Figure 4-7. The supply curve S ₁ and the demand curve D indicate initial conditions in the market for gasoline. A $.60-per-gallon excise tax on gasoline is levied. How much revenue does the $.60-per-gallon tax generate for the government?

Question

Use the figure below to answer the following question(s) .
Figure 4-7

Refer to Figure 4-7. The supply curve S ₁ and the demand curve D indicate initial conditions in the market for gasoline. A $.60-per-gallon excise tax on gasoline is levied. How much revenue does the $.60-per-gallon tax generate for the government?

Quizplus · Accepted Answer

The excise tax of $.60 per gallon will shift the supply curve leftward by $.60 per gallon. The new equilibrium price will be at point U2 where the new supply curve (S S2U2B11S2U2B0) intersects the demand curve D. The quantity demanded will now be Q2. To find the revenue generated by the tax, we need to calculate the difference between the old and new equilibrium price, which is $.60. Then we multiply this by the new quantity demanded (Q2). $.60 × Q2 = $.60 × 80 billion gallons = $48 billion.

Use the Figure Below to Answer the Following Question(s)