Questions: The graph shows the demand for and supply of bungee jumps in Xtremeland. The government imposes an excise tax on bungee jumps to help pay for the high number of back and neck injuries. What would the government's tax revenue be if it imposes a tax of 80 per jump?

Solution Steps

From the graph, the equilibrium point is where the supply and demand curves intersect. This occurs at a quantity of 40,000 bungee jumps and a price of $120.

An $80 tax per jump will shift the supply curve upward by $80. The new supply curve will intersect the demand curve at a new equilibrium point. From the graph, this new equilibrium quantity is approximately 30,000 bungee jumps.

The tax revenue is calculated by multiplying the tax per jump by the new equilibrium quantity. \[ \text{Tax Revenue} = \text{Tax per jump} \times \text{New equilibrium quantity} \] \[ \text{Tax Revenue} = 80 \times 30,000 \] \[ \text{Tax Revenue} = 2,400,000 \]

Final Answer