Question

The equlibrium price of burritos in Lexington is $8. At this price 800 burritos are sold in a day. A $2 dollar tax is then levied on burritos in Lexington. With this tax output is reduced to 600 burritos per day, sold at a price of $9. What is the revenue generated by the tax?

Answer 1

$1,200

Step-by-step explanation:

The total revenue generated by the burrito tax is $1,200 (= $2 x 600). Since this tax increases the price of the burritos above equilibrium price, it generates a deadweight loss since the quantity demanded decreased because of the tax.