Question

please draw 6 and 8 graphs.

i need to check my work, thanks.

6. On the first graph, show the initial consumer and producers' surplus. On the second graph, show how the producer and consumers surplus changes when supply increases. On the third graph, show how the producer and consumers surplus changes when demand increases Price Tice Supply Price Supply Supply Demand Demand Demand Quantity Quantity Quant 8. On the first graph, show a small tax. On the second graph, show a large tax. On each graph, show how the surpluses change when there is a tax. This is much easier when a generic tax wedge is placed on the market. Price Price Supply Supply Demand Demand Quantity Quantity

Answer 1

6)

a) I have graphed out the normal CS and PS.

b) After the demand shift from CD to C’D’, the new equilibrium occurs at E’ with new price, quantity combination being (P₂, Q₂). I have shown the necessary changes in CS and PS.

c) After the supply shift from AB to A’B’, the new equilibrium occurs at E’’ with new price, quantity combination being (P₃, Q₃). I have shown the necessary changes in CS and PS.

7) Now, I have graphed out the effects of taxation on both CS and PS, assuming equal burden on both the agents. A taxation has a 3 way effect on welfare:

• Decrease in both CS and PS
• Increase in Government Taxation Revenue, as measured by the area of the rectangle, FGBH,
• Increase in Deadweight Loss to the society, as measured by the area of the triangle, GEH

Assuming a tax of T.

Here, price received by producers after taxation: (P₁ – T)

And, price paid by consumers after taxation: (P₁ + T)

D D A P EI CA QB QQ2 S Old CS Old CS CS Tnendaoe incs Tneneas PS Iunoac incs Ineusar iu PS Aouauing to bdon ia bome botu by produu au conayo maly, we hawe AL +T (P-1 B Dewou C mal Tax Laue lox CS KO L PS I Govevnmour'p lanation e Dendweigur vevene FGHI axation GEH Losa aipiug aur