Table 12-2
-Refer to Table 12-2. Suppose that the government imposes a $2 tax on delights, causing the price to increase from $4.00 to $6.00. Total consumer surplus
A)falls by less than the tax revenue generated.
B)falls by more than the tax revenue generated.
C)falls by the same amount as the tax revenue generated.
D)will not fall since Jennifer will no longer be in the market.

Question

Table 12-2 
-Refer to Table 12-2. Suppose that the government imposes a $2 tax on delights, causing the price to increase from $4.00 to $6.00. Total consumer surplus
A)falls by less than the tax revenue generated. 
B)falls by more than the tax revenue generated. 
C)falls by the same amount as the tax revenue generated. 
D)will not fall since Jennifer will no longer be in the market.

Quizplus · Accepted Answer

Total consumer surplus before the tax was imposed was the area under the demand curve and above the price, which was equal to (1/2) x ($4) x (10 - 0) = $20. 
After the tax is imposed, the new price is $6, and the quantity demanded falls to 8. The new total consumer surplus is the area under the demand curve and above the new price, which is equal to (1/2) x ($4) x (8 - 0) = $16. 
Therefore, total consumer surplus falls by $4 ($20 - $16), while tax revenue generated is equal to $2 x 8 = $16. Hence, total consumer surplus falls by more than the tax revenue generated.

Table 12-2 -Refer to Table 12-2. Suppose That the Government Imposes a Government