Question

 Consider the market for mountain bikes. The following graph shows the demand and supply for mountain bikes before the government imposes any taxes.

 First, use tfhe black point (plus symbol) to indicate the equilibrium price and quantity of mountain bikes in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.

 First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the açea representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss.

 Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax.

 Note: You can determine the areas of different portions of the graph by selecting the relevant area.

Answer 1

Ans) Before tax

Consumer surplus = area of upper triangle = 1/2× base × height

consumer surplus = 1/2 × 480 × ( 175-125) = 12,000

Producer surplus = area of lower triangle = 1/2× base × height

Producer surplus = 1/2 × 480 × (125-75) = 12,000

2) After tax÷

Consumer surplus = area of triangle ADF = 1/2 × base × height = 1/2 × 240 × (175-150) = 3,000

Producer surplus = area of triangle BCG = 1/2× base × height = 1/2× 240× (100-75) = 3,000

Tax revenue = area of quardilateral ABCD = length × breadth = 240×(150-100) = 12,000

Dead weight loss = area of triangle ABE = 1/2× base × height = 1/2× (480-240)× (150-100) = 6,000