Figure 8-11
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,
A) the government collects $28 in tax revenue.
B) producer surplus decreases by $13.
C) consumer surplus decreases by $11.
D) the deadweight loss amounts to $9.

Question

Figure 8-11 
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,
A) the government collects $28 in tax revenue. 
B) producer surplus decreases by $13. 
C) consumer surplus decreases by $11. 
D) the deadweight loss amounts to $9.

Quizplus · Accepted Answer

When the tax is imposed, the new market price for the consumers becomes $10 (P3 + tax of $2) and the new market price for producers becomes $8 (P2 - tax of $2). As a result, consumer surplus decreases by $(10-6)x3/2 = $9 and producer surplus decreases by $(8-6)x(7-4)/2 = $6. The total tax revenue collected by the government is $2 x 3 = $6. There is a deadweight loss due to the tax, but it cannot be calculated without more information. Therefore, neither A nor D is the correct answer. Only C is correct because it accurately reflects the decrease in consumer surplus.

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 =