Question

Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is 150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the price of gasoline by $0.75 per gallon. How much revenue does the federal government receive from the tax

Answer 1

Answer:

government revenue $148,071,428,860

Explanation:

Theincremental price is 0.75/3.50 = 0,2142857

from that we get that Quantity demanded will be of

$Q_0 \times (1 + price variation \times demand elasticity) = Q_1$

150 billion x (1 + 0.2142857 x -0.06) = 148.0714286

Now that we got the quantity of gallon sold we multiply by the tax of $1 per gallon thus, 148,071,428,860 will be the revenue for the government