Question

QUESTION 7 Figure: The vertical distance between points A and C represents a tax in the market. T Price Supply 1000 900+ 800 700+ 600 + 500+ 400 300 C 200+ 100 Demand 10 20 30 40 50 60 70 80 90 100110 Quantty Refer to Figure. After the taxes a. there will be a loss to the consumers of the amount $4,000. Б. there will be a loss to the consumers of the amount S6,000. Cthere will be a loss to the consumers of the amount $2,000. d there will be a loss to the consumers of the amount $8,000.

Answer 1

7. Before tax, equilibrium price = $600 and equilibrium quantity = 40.

Consumers surplus before tax = (1/2)*40*(1000 - 600)= $8000

After tax, Consumers pay $800 and equilibrium quantity is 20.

Consumers surplus after tax = (1/2)*20*(1000 - 800) = $2000

Therefore, Consumers surplus decreases by $(8000 - 2000) = $6000

Answer: option B

8. After tax buyers price is P'' and sellers get P'''. Consumers surplus is J. Producers surplus is M and government tariff revenue is (K + L). Total surplus after tax is (J + K + L + M).

Answer: option D

9. Producers surplus is the area below the price producers receive and above the supply curve. Before tax producers surplus is (1/2)*(10 - 2)*600 = $2400. After tax producers surplus is (1/2)*300*(6-2) = $600.

That is, producers surplus decreases by $(2400 - 600) = $1800

Answer: option B