Exhibit 5-9 Supply and Demand Curves for Good X

As shown in Exhibit 5-9, the $200 per unit tax on Good X raises tax revenue per time period totaling:
A) $10,000.
B) $20,000.
C) $30,000.
D) $60,000.

Question

Exhibit 5-9 Supply and Demand Curves for Good X
​

As shown in Exhibit 5-9, the $200 per unit tax on Good X raises tax revenue per time period totaling:
A) $10,000. 
B) $20,000. 
C) $30,000. 
D) $60,000.

Quizplus · Accepted Answer

The tax revenue is equal to the tax per unit multiplied by the quantity demanded at that price.

At the original equilibrium price of $300, the quantity demanded is 50 units.

After the imposition of the $200 per unit tax, the supply curve shifts upward by $200 to S + tax, intersecting the demand curve at a new equilibrium price of $400. At this new price, quantity demanded is 30 units.

Therefore, the tax revenue per time period is: 
($200 per unit) x (30 units) = $6,000

Since this tax revenue is collected every time period, the total tax revenue over a certain time period can be calculated by multiplying the per-time-period tax revenue by the number of time periods: 
$6,000 per time period x 4 time periods = $24,000

Therefore, the tax revenue per time period totaling $20,000 is not possible. The correct answer is B, where the tax revenue per time period totaling $24,000.