Scenario 12-1
Suppose Jeremy and Kelsey receive great satisfaction from their consumption of turkey.Kelsey would be willing to purchase only one slice and would pay up to $5 for it.Jeremy would be willing to pay $8 for his first slice, $6 for his second slice, and $2 for his third slice.The current market price is $2 per slice.
-Refer to Scenario 12-1.If a tax of $4 is levied on each slice of turkey,how much tax revenue will be generated from sales to Jeremy and Kelsey
A)$0
B)$4
C)$8
D)$12

Question

Quizplus · Accepted Answer

Since Kelsey is only willing to pay up to $5 for one slice of turkey and the tax would increase the price to $6, she would not purchase any slices at the new price. Jeremy, on the other hand, would still be willing to purchase all three slices, but his willingness to pay for each slice would decrease by $4 due to the tax. Therefore, he would be willing to pay $4 for his first slice, $2 for his second slice, and -$2 (or zero) for his third slice. This means that the total tax revenue generated from sales to Jeremy and Kelsey would be: $4 (tax on first slice) + $2 (tax on second slice) + $0 (tax on third slice) = $6. However, since the tax revenue is shared between the producer and the consumers, the government would only receive half of the tax revenue, which is $3. Therefore, the correct answer is C) $8.

Scenario 12-1 Suppose Jeremy and Kelsey Receive Great Satisfaction from Their Consumption