Figure 8-2
The vertical distance between points A and B represents a tax in the market.
-Refer to Figure 8-2.Total surplus without the tax is
A)$10,and total surplus with the tax is $2.50.
B)$10,and total surplus with the tax is $7.50.
C)$20,and total surplus with the tax is $2.50.
D)$20,and total surplus with the tax is $7.50.

Question

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2.Total surplus without the tax is
A)$10,and total surplus with the tax is $2.50. 
B)$10,and total surplus with the tax is $7.50. 
C)$20,and total surplus with the tax is $2.50. 
D)$20,and total surplus with the tax is $7.50.

Quizplus · Accepted Answer

Total surplus is the sum of consumer surplus and producer surplus. Without the tax, consumer surplus is the area below the demand curve and above the price line, which is a triangle with a base of 10 and a height of 2.5. Producer surplus is the area above the supply curve and below the price line, which is also a triangle with a base of 10 and a height of 2.5. Therefore, total surplus without the tax is $10 + $2.50 = $12.50.With the tax, the price consumers pay increases by $5, so the demand curve shifts down by $5. The new consumer surplus is the area below the new demand curve and above the new price line, which is a triangle with a base of 10 and a height of 1.25. The new producer surplus is the area above the supply curve and below the new price line, which is a triangle with a base of 10 and a height of 3.75. Therefore, total surplus with the tax is $1.25 + $3.75 = $7.50.

Figure 8-2 the Vertical Distance Between Points a and B Represents a Represents