Question

The supply of luxury boats is perfectly​ elastic, the demand for luxury boats is unit​ elastic, and with no tax on luxury boats the price is ​$22 million and 210210 luxury boats a week are bought. Now luxury boats are taxed 10%. What is the new quantity of boats sold and what is the governments tax revenue?

Answer 1

New demand = 189 boats

Step-by-step explanation:

Given:

Total demand = 210 boats

Price = $22 million

Tax increase = 10%

Find:

New demand

Governments tax revenue

Computation:

price increase by 10% so, demand decrease by 10%

New demand = Total demand [100% - 10%]

New demand = 210 [90%]

New demand = 189 boats

Governments tax revenue = 189[($22million + 10%) - $22million]

Governments tax revenue = 189[$24.2 - $22million]

Governments tax revenue = $415.8 million]