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 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

With a more elastic supply curve (S1), the burden of the excise tax is shared more equally between producers and consumers. As a result, producers will decrease their quantity supplied by a smaller amount and the price increase will be smaller. This means that consumers will absorb less of the tax burden and producers will still be able to earn some profit, resulting in a higher overall tax revenue for the government. Therefore, the government's revenue from the tax is larger if the supply curve is S1.

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