Figure 8-10
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The tax revenue is
A)(P0-P2)x Q2.
B)(P2-P8)x Q2.
C)(P2-P5)x Q5.
D)(P5-P8)x Q5.

Question

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.The tax revenue is
A)(P0-P2)x Q2. 
B)(P2-P8)x Q2. 
C)(P2-P5)x Q5. 
D)(P5-P8)x Q5.

Quizplus · Accepted Answer

When a tax is imposed on a market, it creates a wedge between the price paid by buyers and the price received by sellers. In this case, the tax causes the price received by sellers to decrease from P0 to P2 and the price paid by buyers to increase from P0 to P8. The difference between these two prices (P8-P2) is the size of the tax. 
If the quantity sold in the market after the tax is Q2, then the tax revenue collected by the government is equal to the size of the tax multiplied by the quantity sold, which is (P8-P2)x Q2. Therefore, the correct answer is B.

Figure 8-10 -Refer to Figure 8-10.Suppose the Government Imposes a Tax That