Question

Table 12-1 Person Value of a Weekend Ski Trip (Dollars) Anna 150 Brian Clem Dave 90 75 50 Refer to Table 12-1. Assume that the price of a weekend ski pass is $45 and that the price reflects the actual unit cost of providing a weekend of skiing. Suppose the government imposes a tax of $12 on skiing, which raises the price of a weekend ski pass to $57. Whát is the value of the surplus that accrues to all four skiers from their weekend trip? a $185 b. $144 C. $41 O d. 595

Answer 1

It shall be noted that post-tax, the value of the consumer surplus that accrues to each of the four skiers from their weekend trip is given by:

Consumer surplus of Person i = max(Value of a Weekend Ski Trip - Post tax Price, 0)

Thus, the consumer surplus of each of the person is:

Person	Value of a Weekend Ski Trip (Dollars)	Pre-tax Price	Post-tax Price	Post-tax consumer surplus
Anna	150	45	57	93
Brian	90	45	57	33
Clem	75	45	57	18
Dave	50	45	57	0

For Dave, the post-tax price is $57 and his value of the weekend ski trip is $50, hence, he won't be able to purchase the weekend ski trip deal. Hence, his consumer surplus is 0

Thus, the total value of the surplus that accrues to the four skiers from their weekend trip is $93 + $33 + $18 = $144

Hence, the correct answer is b. $144