Question

Use the following table to answer questions 2-3. Table: The Market for Fried Twinkies Quantity Demanded 9,000 Price $1.10 1.20 1.30 1.40 1.50 8.000 7.000 6,000 5,000 Quantity Supplied 3,000 5,000 7,000 9,000 11.000 2. Look at the table "The Market for Fried Twinkies. As a result of the $0.30 tax per reduce the government will receive total tax revenue of: The government decides to tax fried Twinkies at a rate of SO. 30 per Twinkle and collect that tax from the producers. According to the table, consumers will pay per Twinkle and buy ._.TWwws after the fax. a) $1.20; 8,000 b) $1.30; 7,000 c) $1.40; 6,000 d) $1.50; 5,000

Answer 1

Government collects tax revenue equals to the shaded portion in the diagram. More tax falls on the consumers as they have inelastic demand of the good. $0.20 of the tax falls on consumers while $0.10 on producers. Thus government tax revenue = $0.30 * 5000 = $1500

Consumers are paying $1.5 and purchasing 5000 units. Thus option D is correct.

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