Figure 8-5
Suppose that the government imposes a tax of P3 - P1.
-Refer to Figure 8-5.Consumer surplus before the tax was levied is represented by area
A)A.
B)A+B+C.
C)D+H+F.
D)F.

Question

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5.Consumer surplus before the tax was levied is represented by area
A)A. 
B)A+B+C. 
C)D+H+F. 
D)F.

Quizplus · Accepted Answer

Consumer surplus before the tax was levied is represented by the area A+B+C. This includes the amount that consumers are willing to pay (represented by the demand curve) but did not have to pay (represented by the market price). With the tax, the quantity demanded decreases and consumer surplus decreases to the area A only. Therefore, the best choice is B as it represents the initial consumer surplus and the decrease due to the tax.

Figure 8-5 Suppose That the Government Imposes a Tax of P3 -