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Question
Macroeconomics
Posted 7 months ago

The graph below shows the effect of a $1\$ 1 tax on a good with a perfectly elastic supply.
A $1\$ 1 per unit tax has been imposed on sellers of this good

What is the tax revenue collected when this $1\$ 1 per unit tax was imposed on this market?

What is the total amount of tax revenue and how much of that is the producer's tax burden?

Choose 1 answer:
(A) Tax revenue is $1\$ 1; producer's tax burden is $1\$ 1;
(B) Tax revenue is $1\$ 1; producer's tax burden is $0\$ 0;
(C) Tax revenue is $3\$ 3; producer's tax burden is $1.50\$ 1.50.
(D) Tax revenue is $3\$ 3; producer's tax burden is $3\$ 3
(E) Tax revenue is $3\$ 3; producer's tax burden is $0\$ 0.
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Answer from Sia
Posted 7 months ago
Solution
a
Tax Revenue Calculation: The tax revenue is calculated as the tax per unit times the quantity sold. Given that the supply is perfectly elastic, the entire tax is passed on to consumers, and the quantity sold remains the same
b
Producer's Tax Burden: In the case of perfectly elastic supply, the producer's tax burden is zero because they can pass the entire tax onto the consumers without affecting the quantity sold
Answer
(E) Tax revenue is 3;producer′staxburdenis3; producer's tax burden is 0.
Key Concept
Tax revenue with perfectly elastic supply
Explanation
Tax revenue is the product of the tax rate and the quantity sold. With a perfectly elastic supply, producers do not bear any of the tax burden, as they can pass the full amount of the tax onto consumers.

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