Question

NAME PRINT LAST NAME, FIRST NAME SECTION Commodity taxes usually result in deadweight loss because a tax saus fall, increasing both consumer surplus and producer Surplus fall, decreasing both consumer surplus and producer surplus rise, increasing both consumer surplus and producer surplus rise, decreasing both consumer surplus and producer surplus Use the graph below to answer questions 6 through 10. Price 8.50 Supply + Tas 6.50 5.50 4.50 - Supply 3.50 Demand 750 1,500 Quantity If there is no tax and the market has achieved equilibrium, then bought and sold for a price of_ cach. a 750; $6.50 1,500; $6,50 b. 750, $3.50 d 1.500: 54.50 _units will be If there is no tax and the market has achieved equilibrium, consumer Surplus is com _ and producer surplus is equal to a $3,000, S1.500 C S1,500, 5750 b. $1.500; $3,000 d $750, S1,500 3 If a $3 per-unit tax is imposed in this market, the quantity consumed changes to and the price paid by consumers changes to 750: 56.50 c. 1,500: 6.50 b. 750; $3.50 1,500; $4.50 If a $3 per-unit tax is imposed in this market, the quantity produced changes to the price retained by sellers changes to 750, S6,50 c. 1,500; $6.50 b. 750: $3.50 d. 1,500; $4.50 9. ind 10. If a $3 per-unit tax is imposed in this market, there is a deadweight loss of: a $750 b. S1.125 C. $2,250 d. S4,800 Chapter 7 Assignments 148

Answer 1

Answer : 5) The answer is option b.

When tax is imposed on commodity then price rise. As a result, the quantity level decrease and a part of consumer surplus and producer surplus go to the government as tax revenue. And another part of consumer surplus and producer surplus is deadweight loss. So, due to tax impose the producer surplus and consumer surplus decrease. Hence except option b other options are not correct. Therefore, option b is the correct answer.

6) The answer is option d.

Without tax the demand = supply occurs at quantity level of 1,500 where the price is $4.50. So, without tax the equilibrium price is $4.50 and quantity is 1,500. Hence except option d other options are not correct. Therefore, option d is the correct answer.

7) The answer is option a.

Without tax

Consumer surplus (CS) = 0.5 * Height * Base = 0.5 * (8.50 - 4.50) * 1500 = $3,000

Producer surplus (PS) = 0.5 * Height * Base = 0.5 * (4.50 - 2.50) * 1500 = $1,500

Hence except option a other options are not correct. Therefore, option a is the correct answer.

8) The answer is option a.

Based on given diagram after tax impose the price rises to $6.50 and quantity demanded decreases to 750. Hence except option a other options are not correct. Therefore, option a is the correct answer.

9) The answer is option b.

After tax impose the market supply curve shifts to leftward. As a result, at new equilibrium the quantity produced is decreased to 750. The new equilibrium price is $6.50 but sellers' retained price is $3.50 due to $3 per unit tax. Hence except option b other options are not correct. Therefore, option b is the correct answer.

10) The answer is option b.

Deadweight loss = 0.5 * (Consumers' paid price - Producers' received price) * Changes in quantity

=> Deadweight loss = 0.5 * (6.50 - 3.50) * (1500 - 750)

=> Deadweight loss = $1,125

Hence except option b other options are not correct. Therefore, option b is the correct answer.