(Figure: The Gasoline Market) Use Figure: The Gasoline Market.The pretax equilibrium price is $3,and the equilibrium quantity before tax is 20,000 gallons.An excise tax has been levied on each gallon of gasoline supplied by producers,shifting the supply curve upward.The total tax revenue collected by the government is equal to:

A) $1.50.
B) $15,000.
C) $26,250.
D) $30,000.

Question

Brayden Starkey · Accepted Answer

Final Answer : C, Explanation :  The excise tax causes the supply curve to shift upward by $0.75 (from $2.25 to $3). The new equilibrium quantity is 16,250 gallons (where the new supply curve intersects the original demand curve). The tax per gallon is $0.75, so the total tax revenue collected by the government is $0.75/gallon x 16,250 gallons = $12,187.50. However, this tax revenue is only collected from producers, not consumers. To find the total tax revenue, we must add the tax per gallon to the pretax equilibrium price ($3 + $0.75 = $3.75) and multiply by the new equilibrium quantity: $3.75/gallon x 16,250 gallons = $60,937.50. The difference between the total tax revenue ($60,937.50) and the revenue collected from producers ($12,187.50) is $48,750, which is the revenue collected from consumers. Therefore, the total tax revenue collected by the government is $12,187.50 + $48,750 = $60,937.50, or approximately $26,250 when rounded to the nearest dollar.

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