(Figure and Table: The Market for Lyft Rides) Use Figure and Table: The Market for Lyft Rides. If the government imposes an excise tax of $2 per ride on producers, then people who drive Lyft will pay _____ of each $2 tax.
A)$2
B)$1.50
C)$1.00
D)$0.50

Question

(Figure and Table: The Market for Lyft Rides) Use Figure and Table: The Market for Lyft Rides. If the government imposes an excise tax of $2 per ride on producers, then people who drive Lyft will pay _____ of each $2 tax. 
A)$2 
B)$1.50 
C)$1.00 
D)$0.50

Quizplus · Accepted Answer

When an excise tax is imposed, the supply curve shifts upward by the amount of the tax. In this case, the supply curve shifts from S1 to S2, resulting in a new equilibrium quantity of 800 rides and a higher price of $12 per ride. The $2 tax is ultimately paid by either the buyers or the sellers, or a combination of both. In this case, because the supply curve shifts upward by the full amount of the tax, the entire $2 tax will be paid by the sellers (i.e. Lyft drivers). Therefore, the drivers will pay the full $2 tax and receive $10 per ride, resulting in a decrease in producer surplus.

(Figure and Table: the Market for Lyft Rides) Use Figure