Chapter.8_review.pdf

The fects of a tx 1A tax on a god places a wedge btwen the price that buyers pay nd the price tht selers reive. Th quantiy of t god sold fls. A tx o a god causes te size of th market for the gd t shrink. Price Quantiy0 Demand SuplyPrice buyers payPrice without ax Price slers recive Sizeof taxQuantiywith tx Quantiywithot ax Tax revnue 2The tax revenue that he government colects equals T ×Q, the size of the tax tims th qatiy sold Q. Thus, tax rvenu ls the ar of the rectangle btwen the suply and emad curves Price Quantiy0 Demand Suply Quantiywith tx Quantiywithot ax Size of tax (T) Quantiy sold (Q) TaxrevnueT ?QPrice buyers payPrice slers recive How a tx afects welfare 3 A tax on a god reduces consumer surplus (by th are B + C) and rodcer surplus (by the rea D + E). Becae the fal in producer and consumer srpls xces tax rev (are B + D), th t is aid to ipose a deweight l (re C + E). Price Quantiy0 Demand SuplyABD F Q1CEPriceslrsrecive=PSPricewithouttax=P1 Pricebuyrspa=PB Q2Without TaxWith TaxChange in wlfrConsumer SurplusPrdcr rlsTax Revnue otl Srpls A+BCDEFNoneA+BC+DE+FAFB+DAF-(B+C)-(DE)+(B)-(CE) The are C + E shows the fal in total surplu and is the ddweight los of t tax 4 The government levis a tx of the vrtical distance from point A to pint B A B D emand Sup p ly 100 200 300 400 500 600 700 800 900 1000 Q uantity 2 4 6 8 10 12 14 16 18 20 22 P riceA BCDEF a.equilibrium price before the tax = $10b.consumer surplus before the tax =$3,600 c.producer surplus before the tax=$2,400d.total surplus before the tax= $6,000 e.consumer surplus after the tax= $900f.producer surplus after the tax=$600g.total tax revenue to the government=$3,000h.total surplus (consumer surplus+producersurplus+taxrevenue) aftr the tax =$4,500 i.deadweight loss =$1,500 Sangsoo Microsoft PowerPoint - Chapter.8_review.ppt [?? ??]