Figure 8-2
The vertical distance between points A and B represents a tax in the market.
-Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
A) $1.
B) $2.
C) $3.
D) $4.

Question

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of producer surplus as a result of the tax is
A) $1. 
B) $2. 
C) $3. 
D) $4.

Quizplus · Accepted Answer

The loss of producer surplus is represented by the red shaded area in the figure, which is the difference between the amount producers would receive without the tax (represented by the supply curve) and the amount they receive with the tax (represented by the price they receive after the tax, or the demand curve shifted downward). The loss of producer surplus is equal to the area of the triangle between the original supply curve and the new equilibrium quantity after the tax. This triangle has a base of 2 (from the difference in quantity demanded and supplied at the new equilibrium) and a height of 3 (the vertical distance between points A and B), so the loss of producer surplus is 1/2 * 2 * 3 = $3. Therefore, the correct choice is C.

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