Scenario 12-2
Suppose that Bob places a value of $10 on a movie ticket and that Lisa places a value of $7 on a movie ticket. In addition, suppose the price of a movie ticket is $5.
-Refer to Scenario 12-2. Suppose the government levies a tax of $1 on each movie ticket and that, as a result, the price of a movie ticket increases to $6.00. If Bob and Lisa both purchase a movie ticket, what is total consumer surplus for Bob and Lisa?
A)$0.00
B)$0.50
C)$5.00
D)$6.00

Question

Quizplus · Accepted Answer

Before the tax, Bob's consumer surplus was $5 ($10 value - $5 price) and Lisa's consumer surplus was $2 ($7 value - $5 price). Therefore, total consumer surplus before the tax was $7 ($5 + $2).

After the tax, the price of a ticket increased to $6. Bob's consumer surplus would now be $4 ($10 value - $6 price) and Lisa's consumer surplus would be $1 ($7 value - $6 price). Total consumer surplus after the tax is $5 ($4 + $1).

Therefore, the total consumer surplus lost due to the tax is $2 ($7 before - $5 after), which is divided equally between Bob and Lisa. So, each of them lost $1 of consumer surplus due to the tax. Thus, the total consumer surplus for Bob and Lisa after the tax is $5 ($5 before - $2 lost + $1 gained by each of them).

Scenario 12-2 Suppose That Bob Places a Value of $10 on a on a Movie