Question

The following questions are based on the diagram below, which shows the effect of a unit tax placed on a good.

A graph in the first quadrant is shown with quantity on the horizontal axis and price in dollars on the vertical axis. The values Q prime and Q with Q prime less than Q are labeled on the horizontal axis, and the values 9.45, 10, 10.45, and 11 are labeled on the vertical axis. A line is plotted on the graph that is labeled demand and starts near the top of the vertical axis, above the value 11, and decreases to the right, ending on the horizontal axis. Two other parallel lines are plotted on the graph, with the upper line labeled supply after tax and the lower line labeled supply. Both lines start on the vertical axis below 9.45 and increase to the right. The upper line crosses the demand line at quantity Q prime and price 10.45, and dashed reference lines are drawn from the axes to this intersection. The lower line crosses the demand line at quantity Q and price 10, and dashed reference lines are drawn from the axes to this intersection. Dashed reference lines are also drawn from the price 9.45 to quantity Q prime and the supply line, and from price 11 to quantity Q and the supply after tax line.

34

Mark for Review

According to the diagram, what is the dollar amount of the unit tax?


$0.00


a

$0.45


b

$0.55


c

$1.00


d

$1.45

Answer 1

Answer: $1.00

Explanation: The unit tax equals the vertical distance between the supply and supply‑after‑tax curves. At the new equilibrium (Q′) consumers pay $10.45 while producers receive $9.45, so the tax = $10.45 − $9.45 = $1.00.