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In the City of Sweetwater, a large, two-liter bottle of Sparkly, a sugary soda, sells for $5.00 per bottle. 100,000 of those large two-liter bottles
In the City of Sweetwater, a large, two-liter bottle of Sparkly, a sugary soda, sells for $5.00 per bottle. 100,000 of those large two-liter bottles of Sparkly are purchased in Sweetwater each year. The Sweetwater City Council is informed that for this product the elasticity (e) is exactly 2.0. Councilmember Prudence Refrayn, hoping to discourage residents from consuming Sparkly and also collect some tax revenue, proposes adding a 5% sales tax per bottle. Assuming that the demand response to the new price ($5.00 per bottle plus the tax} is immediate, and that the tax is cost-free for the City to enforce and 100% effective, how much tax revenue per year should Councilmember Refrayn expect the City to collect
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