Tax Revenue Calculation from Supply Shift

Steps:

• Identify tax per unit as vertical distance between S1 and S2 at new equilibrium (e.g., $5).
• Locate post-tax equilibrium quantity where S2 intersects demand (e.g., 40 units).
• Compute revenue: tax per unit × quantity (e.g., $5 × 40 =$200).
• Confirm no deadweight loss affects revenue directly.

Why C is correct:

• $200 equals tax per unit times post-tax quantity, per standard tax incidence formula.

Why the others are wrong:

• A: $40 undercounts by using pre-tax quantity.
• B: $160 misapplies tax rate or quantity.
• D: $320 overcounts by using pre-tax quantity.

Final answer: C