Figure 8-7
The vertical distance between points A and B represents a tax in the market.

-Refer to Figure 8-7.As a result of the tax,consumer surplus decreases by
A) $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30.
B) $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30.
C) $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40.
D) $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40.

Question

Figure 8-7
The vertical distance between points A and B represents a tax in the market.
 
-Refer to Figure 8-7.As a result of the tax,consumer surplus decreases by
A) $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30. 
B) $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30. 
C) $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40. 
D) $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40.

Quizplus · Accepted Answer

In the graph, the vertical distance between points A and B represents the tax in the market. The decrease in consumer surplus is shown by the area of the triangle formed by points A, C, and D, which is $80. The decrease in producer surplus is shown by the area of the triangle formed by points B, C, and E, which is also $80. Tax revenue is the size of the rectangle formed by points C, D, E, and F, which is $120. Deadweight loss is shown by the area of the triangle formed by points A, B, and C and the area of the triangle formed by points E, F, and B, which is $40. Therefore, choice C is the correct answer.

Figure 8-7 the Vertical Distance Between Points a and B Represents a Represents