Question

Suppose that the government enacts a tax on retail sales of road salt, which homeowners and businesses put on walkways and driveways. Assume that the supply of salt is perfectly elastic, due to the ease with which suppliers can stockpile the product. Before the tax, 800 fifty-pound bags of road salt are sold at an equilibrium price of $5.5 per bag. After the tax, 775 bags are sold at $8 per bag. How much revenue does the tax generate for the government? $

Answer 1

Answer:

revenue fromthe tax = 1,1,937.5 dollars

Explanation:

current price - price before tax  = tax

8 - 5.5 = 2.5 tax

quantity x tax = revenue from tax

775 bag x 2.5 = $1,937.5

The decrease in the quantity is not taxes, so it doesn't generate any revenue for the goverment.