Figure 8-6
The vertical distance between points A and B represents a tax in the market.
-Refer to Figure 8-6.What happens to consumer surplus when the tax is imposed in this market?
A)Consumer surplus falls by $3,600.
B)Consumer surplus falls by $2,700.
C)Consumer surplus falls by $1,800.
D)Consumer surplus falls by $900.

Question

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6.What happens to consumer surplus when the tax is imposed in this market?
A)Consumer surplus falls by $3,600. 
B)Consumer surplus falls by $2,700. 
C)Consumer surplus falls by $1,800. 
D)Consumer surplus falls by $900.

Quizplus · Accepted Answer

Consumer surplus is the area above the equilibrium price and below the demand curve (triangle ABE). When the tax is imposed, the new equilibrium price is higher (at point C), reducing consumer surplus to the area above the new equilibrium price and below the demand curve (triangle ACE). The reduction in consumer surplus can be calculated as the difference between the two triangles, which is equal to $2,700 (0.5 x $30 x 90).

Figure 8-6 the Vertical Distance Between Points a and B Represents a Represents