Use the figure below to answer the following question(s).
Figure 4-9

Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated. How much revenue would the $.40 gasoline tax raise?
A) $18 million
B) $36 million
C) $72 million
D) $100 million

Question

Use the figure below to answer the following question(s).
Figure 4-9

Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated. How much revenue would the $.40 gasoline tax raise?
A) $18 million 
B) $36 million 
C) $72 million 
D) $100 million

Quizplus · Accepted Answer

The distance between points b and d is $.40, which is the amount of the excise tax. The quantity demanded at point d is 35 million gallons, and the price paid by consumers is $2.60 per gallon (point d on the demand curve). The revenue generated by the tax is equal to the tax per gallon multiplied by the quantity sold, which is $.40 multiplied by 35 million gallons, equaling $14 million. However, the tax is also paid by producers (sellers), which shifts the supply curve upward by the amount of the tax, resulting in a new equilibrium at point c. At point c, the price paid by consumers is $3.00 per gallon, and the quantity sold is 30 million gallons, resulting in an additional $12 million in tax revenue. Therefore, the total revenue raised by the $.40 gasoline tax is $14 million + $12 million, which equals $26 million, or choice B.

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