Question

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and Care rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers. N Р S ST A Pc B F Pe G с Ps Qт Qe

Answer 1

Answer- Correct option is 'C'

A + B + F areas represent consumer surplus before the tax is imposed. Consumer surplus is the difference between the price that consumers pay and the price that they are willing to pay. On a supply and demand curve, it is the area between the equilibrium price and the demand curve. Before the tax, the equlibrium price is P_e and equilibrium quantity is Q_e , where the demand curve and supply curve intersect each other, now the consumer surplus is represented by the area of A + B + F. Consumer surplus is indicated by the area under the demand curve and above the market price (it means equilibrium price before tax).