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
149 views
The graph shows the demand and supply of bungee jumps
in Xtremeland. The government decides to impose an
200
Supply
180
excise tax on bungee jumps to help pay for the high
160
number of back and neck injuries.
140
120-
100-
80
60-
40
Demand
20-
50,000
0
10,000
30,000
70,000
Quantity of bungee jumps
What would the government's tax revenue be if it imposes
a tax of $80 on each jump?
What would the government's tax revenue be if it imposes
a tax of $40 on each jump?
What would the government's tax revenue be if it imposes
a tax of $120 on each jump?
Price of bungee jumps (S)
help_outline

Image Transcriptionclose

The graph shows the demand and supply of bungee jumps in Xtremeland. The government decides to impose an 200 Supply 180 excise tax on bungee jumps to help pay for the high 160 number of back and neck injuries. 140 120- 100- 80 60- 40 Demand 20- 50,000 0 10,000 30,000 70,000 Quantity of bungee jumps What would the government's tax revenue be if it imposes a tax of $80 on each jump? What would the government's tax revenue be if it imposes a tax of $40 on each jump? What would the government's tax revenue be if it imposes a tax of $120 on each jump? Price of bungee jumps (S)

fullscreen
What principle of taxation does the graph
help demonstrate?
the higher the tax rate, the higher the revenue
the lower the tax rate, the lower the revenue
setting too high a tax rate can reduce tax revenue
the higher the tax rate, the lower the
deadweight loss
help_outline

Image Transcriptionclose

What principle of taxation does the graph help demonstrate? the higher the tax rate, the higher the revenue the lower the tax rate, the lower the revenue setting too high a tax rate can reduce tax revenue the higher the tax rate, the lower the deadweight loss

fullscreen
check_circle

Expert Answer

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:

120 x 200 - 2Q
80 x
2
help_outline

Image Transcriptionclose

120 x 200 - 2Q 80 x 2

fullscreen
Step 2

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

120 (80 x) 40 2Q
40 402Q
x 2Q
Q
2
help_outline

Image Transcriptionclose

120 (80 x) 40 2Q 40 402Q x 2Q Q 2

fullscreen
Step 3

At equilibr...

2x 80
x=40
Substituting the value of x in P, and P
P-160and P-80
Equilibrium quantity can be calculated by substituting the values of P and P, in the demand function and supply function respectively.
120+40-20040 = 20 thousand
help_outline

Image Transcriptionclose

2x 80 x=40 Substituting the value of x in P, and P P-160and P-80 Equilibrium quantity can be calculated by substituting the values of P and P, in the demand function and supply function respectively. 120+40-20040 = 20 thousand

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Related Economics Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Describe information imperfection and its role in market failure.  Do consumers possess perfect ackn...

A: Imperfect information means that one party (either buyer or seller) has more information than the ot...

question_answer

Q: Business Cycles What unticipated Changes lead to economic booms? What unticipated Changes lead to r...

A: Due to typo error in the question (unticipated), answer does not specifically mentioned about antici...

question_answer

Q: Assume that the fund is liquidated at the end of the fourth quarter, what are the arithmetic, time-w...

A: Here the Price is determined at the 6 and Demand  is also at 6Midpoint elasticity is denoted as((D2-...

question_answer

Q: Which items count as part of this year's GDP? Group of answer choices a. final goods [ Choose ] no y...

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If y...

question_answer

Q: there are 4 consumers willing to pay the following amountd a-7 b-2 c-8 d-5 there are 4 haircutting f...

A: Consumer’s maximum willingness to pay is called reservation price. From the producer’s point of view...

question_answer

Q: you are the mayor of the smalltown of wasilla and a landowner has offered to sell you 1,000 hectares...

A: a) If the buying the woodland will be good decision only when the net present value of benefit is gr...

question_answer

Q: 8. Suppose the government borrow $20 billion more next year than this year. Use a supply-and demand...

A: If the government borrow $20 billion more next year than this year it means government is running a ...

question_answer

Q: Public goods:a. Please explain public goods.  b. Please explain their characteristics. c.  Please g...

A: Click to see the answer

question_answer

Q: An increase in the price of the cheese used to produce pizza shifts the supply and demand curve of p...

A: Cheese is used as a raw material in producing pizza. So, cheese is a factor of production in making ...