After the government imposes an excise tax on a market, what determines the amount of government revenue collected from the tax?

• A. The excise tax rate multiplied by the equilibrium quantity before the tax
• B. The difference between the price paid by buyers and the price received by sellers, multiplied by the equilibrium quantity before the tax
• C. The excise tax rate multiplied by the difference between the quantity demanded and quantity supplied after the tax
• D. The excise tax rate multiplied by the quantity of the good sold after the tax is imposed

Answer: (D)

Verified step by step guidance

1. Understand that government revenue from an excise tax is calculated as the tax rate multiplied by the quantity of the good sold after the tax is imposed.
2. Recognize that the excise tax creates a wedge between the price buyers pay and the price sellers receive, which affects the equilibrium quantity in the market.
3. Identify the new equilibrium quantity after the tax is imposed by analyzing how the tax shifts either the supply curve upward by the tax amount or the demand curve downward by the tax amount.
4. Calculate the government revenue using the formula: \(\text{Government Revenue} = \text{Excise Tax Rate} \times \text{Quantity Sold After Tax}\).
5. Note that the quantity sold after the tax is generally less than the original equilibrium quantity before the tax, so using the post-tax quantity is essential for accurate revenue calculation.