Figure 18-2

Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold, the government's revenue from the tax
A)is larger if the supply curve is S₀.
B)is larger if the supply curve is S₁.
C)is identical under either supply curve.
D)is not maximized.

Question

Figure 18-2
  
Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other.
-Refer to Figure 18-2.If the government imposes an excise tax of $1.00 on every unit sold, the government's revenue from the tax
A)is larger if the supply curve is S₀. 
B)is larger if the supply curve is S₁. 
C)is identical under either supply curve. 
D)is not maximized.

Quizplus · Accepted Answer

The government's revenue from the tax is larger if the supply curve is S₁. This is because the more elastic supply curve (S₁) shifts by a greater amount than the less elastic supply curve (S₀) in response to the tax, resulting in a greater decrease in quantity supplied and a larger increase in price. This leads to a larger increase in tax revenue for the government.

Figure 18-2 Figure 18-2 Shows a Demand Curve and Two Sets of Curve