# The graph shows the demand and supply of bungee jumpsin Xtremeland. The government decides to impose an200Supply180excise tax on bungee jumps to help pay for the high160number of back and neck injuries.140120-100-8060-40Demand20-50,000010,00030,00070,000Quantity of bungee jumpsWhat would the government's tax revenue be if it imposesa tax of \$80 on each jump?What would the government's tax revenue be if it imposesa tax of \$40 on each jump?What would the government's tax revenue be if it imposesa tax of \$120 on each jump?Price of bungee jumps (S) What principle of taxation does the graphhelp demonstrate?the higher the tax rate, the higher the revenuethe lower the tax rate, the lower the revenuesetting too high a tax rate can reduce tax revenuethe higher the tax rate, the lower thedeadweight loss

Question
Asked Oct 10, 2019
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Step 1

From the demand schedule, the demand equation is P = 200 – 2Q and the supply equation is P = 40 + 2Q.

Suppose that a tax of \$80 is imposed then the new price paid by buyers will be PB = 120 + x and the price received by sellers equals PS = 120 – (80 – x).

Substituting the price paid by buyers in the demand function:

Step 2

Similarly, substituting the price received by sellers in the supply function:

Step 3

At equilibr...

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