Figure 8-2
The vertical distance between points C and D represents a tax in the market.

-Refer to Figure 8-2. Producer surplus without the tax is
A)$16, and producer surplus with the tax is $4.
B)$4, and producer surplus with the tax is $16.
C)$24, and producer surplus with the tax is $6.
D)$6, and producer surplus with the tax is $24.

Question

Figure 8-2
The vertical distance between points C and D represents a tax in the market.
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-Refer to Figure 8-2. Producer surplus without the tax is
A)$16, and producer surplus with the tax is $4. 
B)$4, and producer surplus with the tax is $16. 
C)$24, and producer surplus with the tax is $6. 
D)$6, and producer surplus with the tax is $24.

Quizplus · Accepted Answer

Producer surplus is the area above the supply curve but below the price level up to the quantity sold. Without the tax, the producer surplus is larger because the price received by producers is higher and the quantity sold is likely higher as well. With the tax, the producer surplus decreases because the effective price received by producers is lower and the quantity sold is likely reduced. Therefore, option A correctly reflects a scenario where the producer surplus decreases from $16 to $4 due to the imposition of a tax.

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