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The current equilibrium price and quantity are known. Suppose the government plans on generating tax revenue of $10 million by imposing a per-unit tax on good A. The government fully knows the supply curve for good A, but the demand curve is unknown. As a result, the government hires an economist to estimate the demand for good A. Based on these estimates, in order to raise the $10 million in revenue, the government will impose a $1 per-unit tax, which is expected to make the price consumers pay after the tax equal to $10 per unit and the price suppliers receive after the tax equal to $9 per unit. However, when the tax is actually implemented, the price consumers ended up paying was $9.90 per unit. Relative to what the government originally expected, which of the following must be true? The deadweight loss from the tax will be higher, the tax revenue from the tax will be higher, the quantity transacted of the good will be higher. O The deadweight loss from the tax will be lower, the tax revenue from the tax will be higher, and the quantity transacted of the good will be higher. O The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be higher. The deadweight loss from the tax will be lower, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower. O The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower.

The current equilibrium price and quantity are known. Suppose the government plans on generating tax revenue of $10 million by imposing a per-unit tax on good A. The government fully knows the supply curve for good A, but the demand curve is unknown. As a result, the government hires an economist to estimate the demand for good A. Based on these estimates, in order to raise the $10 million in revenue, the government will impose a $1 per-unit tax, which is expected to make the price consumers pay after the tax equal to $10 per unit and the price suppliers receive after the tax equal to $9 per unit. However, when the tax is actually implemented, the price consumers ended up paying was $9.90 per unit. Relative to what the government originally expected, which of the following must be true? The deadweight loss from the tax will be higher, the tax revenue from the tax will be higher, the quantity transacted of the good will be higher. O The deadweight loss from the tax will be lower, the tax revenue from the tax will be higher, and the quantity transacted of the good will be higher. O The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be higher. The deadweight loss from the tax will be lower, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower. O The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower.

Microeconomics A Contemporary Intro
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter5: Elasticity Of Demand And Supply
Section5.A: Appendix: Price Elasticity And Tax Incidence
Problem 1AQ
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The current equilibrium price and quantity are known. Suppose the government plans on generating tax revenue of $10 million by imposing a per-unit tax on good A. The government fully knows the supply curve for good A, but the demand curve is unknown. As a result, the government hires an economist to estimate the demand for good A. Based on these estimates, in order to raise the $10 million in revenue, the government will impose a $1 per-unit tax, which is expected to make the price consumers pay after the tax equal to $10 per unit and the price suppliers receive after the tax equal to $9 per unit. However, when the tax is actually implemented, the price consumers ended up paying was $9.90 per unit. Relative to what the government originally expected, which of the following must be true? The deadweight loss from the tax will be higher, the tax revenue from the tax will be higher, the quantity transacted of the good will be higher. The deadweight loss from the tax will be lower, the tax revenue from the tax will be higher, and the quantity transacted of the good will be higher. The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be higher. The deadweight loss from the tax will be lower, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower. O The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower.
Transcribed Image Text:The current equilibrium price and quantity are known. Suppose the government plans on generating tax revenue of $10 million by imposing a per-unit tax on good A. The government fully knows the supply curve for good A, but the demand curve is unknown. As a result, the government hires an economist to estimate the demand for good A. Based on these estimates, in order to raise the $10 million in revenue, the government will impose a $1 per-unit tax, which is expected to make the price consumers pay after the tax equal to $10 per unit and the price suppliers receive after the tax equal to $9 per unit. However, when the tax is actually implemented, the price consumers ended up paying was $9.90 per unit. Relative to what the government originally expected, which of the following must be true? The deadweight loss from the tax will be higher, the tax revenue from the tax will be higher, the quantity transacted of the good will be higher. The deadweight loss from the tax will be lower, the tax revenue from the tax will be higher, and the quantity transacted of the good will be higher. The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be higher. The deadweight loss from the tax will be lower, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower. O The deadweight loss from the tax will be higher, the tax revenue from the tax will be lower, and the quantity transacted of the good will be lower.
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