To raise money for a new student union, the Student Snack Bar charges a tax of $0.75
on each beverage. In the graph, the original demand curve for beverages is labeled "Demand" and the shifted demand curve, which accounts for the tax, is labeled "Shifted Demand." Use this graph to answer the questions. Answer to the nearest cent.
Answers
1. The Student Snack Bar pays $0.50 per beverage of the tax.
2. The students pay $0.25 per beverage of the tax.
Data and Calculations based on the graph:
The total cost/revenue of beverage purchased after the tax = $1,000 (500 x $2.00)
The total cost/revenue of beverage purchased before tax = $1,225 (700 x $1.75)
The price per beverage before $0.75 tax = $1.75
The price per beverage after $0.75 tax = $2.00
Students pay additional $0.25 (tax) per beverage ($2.00 - $1.75)
The Student Snack Bar pays $0.50 (tax) per beverage ($1.75 - $1.25) because its revenue per beverage reduces from $1.75 to $1.25 ($2.00 - $0.75).
Thus, the students suffer an increase of 14.3% ($0.25/$1.75 x 100) while the Student Snack Bar loses 28.6% ($0.50/$1.75 x 100) in revenue because of the tax.
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Source of info Goo gle
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