It turns out that much of the surplus lost by consumers and producers ends up as tax revenue for the government who imposed the excise tax. The red shaded area shown to the right is tax revenue for this market. In this particular instance, the tax revenue is $160 (40 units x $4 tax).

    One important thing to keep in mind is that quantity sold fell by 20 units due to the tax. In estimating tax revenues from excise taxes governments must remember to estimate the reduced sales due to the tax. A naive estimate based on the 60 units sold before the tax was imposed would be $80 ($4 x20 units) too high.

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