Figure 18-2
-Figure 18-2 shows the widget market before and after an excise tax is imposed.The tax per widget equals ____.
A)$5
B)$20
C)$25
D)$30

Question

Figure 18-2 
-Figure 18-2 shows the widget market before and after an excise tax is imposed.The tax per widget equals ____.
A)$5 
B)$20 
C)$25 
D)$30

Quizplus · Accepted Answer

The excise tax creates a vertical distance between the supply and demand curves equal to the size of the tax. In this case, the new intersection point occurs at a quantity of 800 and a price of $120. The old equilibrium quantity was 1000, so the difference is 200 widgets. The difference in price is $25 ($120 - $95). Therefore, the tax per widget is $25/200 = $0.125, or $0.13 rounded to the nearest cent. Answer C corresponds to a tax of $25 per widget.

Figure 18-2 -Figure 18-2 Shows the Widget Market Before and After an and After