Homework Answers
Answer :
In above picture's diagram
before tax impose the equilibrium price is $75 per fan and quantity
is 120 fans. CS is the consumer surplus area and PS is the producer
surplus area.
After tax the tax revenue, CS and PS area are shown in picture's diagram. DWL is the deadweight loss area after tax.
Before tax :
Consumer surplus (C.S.) = 0.5 * Height * Base = 0.5 * (105 - 75) * 120 = $1,800.
Producer surplus (P.S.) = 0.5 * Height * Base = 0.5 * (75 - 45) * 120 = $1,800.
Total surplus (T.S.) = C.S. + P.S. = 1800 + 1800 = $3,600.
After tax :
C.S. = 0.5 * (105 - 90) * 60 = $450
P.S. = 0.5 * (60 - 45) * 60 = $450
T.S. = C.S. + P.S. = 450 + 450 = $900
Tax revenue = Per unit tax * Quantity = 30 * 60 = $1,800
Deadweight loss = (T.S. before tax - T.S. after tax) - Tax revenue = (3600 - 900) - 1800 = $900.
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