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The following graph represents the demand and supply for pinckneys (an imaginary product)
The following graph represents the demand and supply for pinckneys (an imaginary product). The black point (plus symbol) indicates the pre-tax equilibrium. Suppose the government has just decided to impose a tax on this market, the grey points (star symbol) indicate the after-tax scenario. Demand Supply 28.00 B 24.00 D PRICE (Dollars per pinckney) 20.00 15 20 QUANTITY (Pinckneys)
Complete the following table, given the information presented on the graph. Value Result Per-unit tax Equilibrium quantity before tax Price producers receive before tax In the following table, indicate which areas on the previous graph correspond to each concept. Check all that apply. ? B ? D E F Concept Tax revenue after the tax is imposed O Consumer surplus before the tax is imposed Producer surplus after the tax is imposed O Grade It Now
Expert Solution
After the imposition of tax, the price paid by the consumers = 28
After the tax imposition, price received by the producers = 20
Price paid by the consumers - price received by the producers = Tax
Therefore tax = 28 - 20 = 8
Per unit tax = 8
* A market is in equilibrium when quantity demanded and quantity supplied become equal.
Therefore the equilibrium quantity before tax = 20
* Before tax the equilibrium price = 24
Per unit tax = 8
Equilibrium quantity before tax = 20
Price producers receive before tax = 24
* Tax revenue after the tax is imposed = quantity * per unit tax
Per unit tax = 8
After tax quantity in the market = 15
Tax revenue = 8 * 15 = 120 which is represented by the area BD
Tax revenue after the tax imposed = BD
* Consumer surplus is the difference between maximum price the consumer is willing to pay and the actual market price.
It is the area below the demand curve.
Before tax, the quantity is 20 and price is 24.
Therefore consumer surplus before tax is represented by the area ABC
Pre tax consumer surplus = ABC
* Producer surplus is the difference between the actual market price and the minimum price willing to accept. It is the area above the supply curve
After tax, the price received by the sellers = 20
Quantity = 15
Therefore after tax producer surplus is represented by the area F
Tax revenue after tax imposed = BD
Consumer surplus before the tax imposed = ABC
Producer surplus after the tax imposed = F
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