Figure 8-3
The vertical distance between points A and C represents a tax in the market.
-Refer to Figure 8-3.Which of the following equations is valid for the tax revenue that the tax provides to the government?
A)Tax revenue = (P2 - P1)xQ1
B)Tax revenue = (P3 - P1)xQ1
C)Tax revenue = (P3 - P2)xQ1
D)Tax revenue = (P3 - P1)x(Q2 - Q1)

Question

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3.Which of the following equations is valid for the tax revenue that the tax provides to the government?
A)Tax revenue = (P2 - P1)xQ1 
B)Tax revenue = (P3 - P1)xQ1 
C)Tax revenue = (P3 - P2)xQ1 
D)Tax revenue = (P3 - P1)x(Q2 - Q1)

Quizplus · Accepted Answer

Tax revenue is equal to the difference between the price with tax and the price without tax multiplied by the quantity sold. In this case, the price with tax is P3 and the price without tax is P1, so the tax revenue is (P3 - P1)xQ1.

Figure 8-3 the Vertical Distance Between Points a and C Represents a Represents