sapling earning Homer is a donut aficionado. Whether it be Krispy Kreme original

Question

sapling earning Homer is a donut aficionado. Whether it be Krispy Kreme originals, Dunkin Donut's 4.5 sprinkled, Shirley's cream filled, or Gourdough's fried chicken donut, Homer loves 4 them all the same. One day, Springfield, Homer's hometown, decides to impose an 3.5 excise (sales) tax on consumers of $0.50 on each donut purchased. On the graph, please shift the appropriate B 2.5 curve to the new equilibrium point after the tax gets put into effect. What is the revenue generated from this 1.5 excise tax (round to the nearest whole number)? 0.5 Number Demand Supply 100 200 300 400 500 600 700 800 900 1000 Quantity

Explanation / Answer

A tax will shift the supply curve upward & in the graph, the new supply curve shown by dark blue straight line is correct.

After-tax Equilibrium output = 500

Previous equilibrium price = $1

New price = $1.5

Tax revenue = 500 x $(1.5 - 1) = 500 x $0.5 = $250

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