Figure 18-2
-Figure 18-2 shows the widget market before and after an excise tax is imposed.The revenue collected by the tax is ____.
A)$8,000
B)$50,000
C)$100,000
D)$150,000

Question

Figure 18-2 
-Figure 18-2 shows the widget market before and after an excise tax is imposed.The revenue collected by the tax is ____.
A)$8,000 
B)$50,000 
C)$100,000 
D)$150,000

Quizplus · Accepted Answer

The excise tax causes the market price for widgets to increase from $5 to $7.50, resulting in a quantity demanded of 10,000 widgets. The revenue collected by the tax is equal to the tax per unit multiplied by the quantity sold, which is ($2.50 x 10,000) = $25,000. However, since both the buyers and the sellers feel the burden of the tax, the total revenue collected by the government is the tax per unit multiplied by the smaller quantity either demanded or supplied. In this case, the smaller quantity is the quantity supplied, which is 20,000 widgets. Therefore, the total revenue collected by the tax is ($2.50 x 20,000) = $50,000.

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