Question

Question 41 2 pts A tax on apples would cause apple growers to suffer because O producer surplus would incre O the government would collect revenue from the tax. O consumers would pay higher prices. O revenues and profits from growing apples would decrease. O consumer surplus would decrease. Question 42 2 pts Excise taxes are taxes that are.

Answer 1

Ans.) Revenues and profits from growing apples would decrease.

Explanation: we assume elastic demand and supply. Suppose intially in equilibrium the price is p* and quantity is q* .

If a unit tax is imposed on apples, the prices would increase to p' and the quantity supplied would decrease to q'. Even as the price has increased, the price that the seller receives per unit is lower than before (due to tax). This implies that the revenue will decrease ( p'q' < p*q* ) and so will the profits.(note that we are assuming this tax to be a sales tax and sales revenue does not include sales taxes so the revenue will definitely be smaller than before).