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The supply of headphones is linear and upward sloping, and the demand for headphones is linear and downward sloping. Suppose the government imposes a per-unit tax in the market for headphones. In this market, the tax decreases consumer surplus by $8,450.00, and it decreases producer surplus by $16,250.00. The tax decreased the equilibrium quantity of the good by 1,200.00 headphones, and it generated a deadweight loss of $7,800.00. The tax revenue generated by this tax is:

a) $6,000.00
b) $8,800.00
c) $9,600.00
d) $11,050.00

1 Answer

6 votes

Final answer:

The calculated tax revenue is not reflected in the provided options. It should be found by summing the decrease in consumer and producer surplus and subtracting the deadweight loss, then dividing by the quantity decrease to find the per-unit tax, and finally, multiplying by the quantity decrease to find total revenue.

Step-by-step explanation:

The student is asking about the impact of a per-unit tax on the market for headphones, specifically regarding tax revenue, consumer surplus, producer surplus, equilibrium quantity, and deadweight loss. To find the tax revenue, we use the information provided about the decrease in consumer surplus, producer surplus, and the deadweight loss. If we add the decrease in consumer surplus ($8,450) and producer surplus ($16,250) together, we get the total loss to the market as a result of the tax, which is $24,700.

Subtracting the deadweight loss ($7,800) from this total gives us the tax revenue, which is $16,900. However, we need to consider the tax per unit by dividing this amount by the reduction in equilibrium quantity (1,200 headphones). This gives us a tax of $14.08 per headphone. Multiplying this tax per unit by the decrease in equilibrium quantity gives us the total tax revenue. Hence, the correct tax revenue is $16,900, which is not one of the provided options. Since the tax revenue must be one of the given options, we need to double-check our calculations or the tax revenue cannot be accurately determined from the information given.

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