Suppose that the government imposes a tax on cigarettes, use the diagram below to answer the questions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curve after the tax. (a) Calculate the consumer surplus before the tax. (b) calculate the producer surplus before the tax.

Suppose that the government imposes a tax on cigarettes, use the diagram below to answer the questions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curve after the tax. (a) Calculate the consumer surplus before the tax. (b) calculate the producer surplus before the tax.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 4PA

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Question

(a) Calculate the consumer surplus before the tax.

(b) calculate the producer surplus before the tax.

Suppose that the government imposes a tax on
cigarettes. Use the diagram below to answer the
questions. D is the demand curve before tax, S is the
supply curve before tax and ST is the supply curve
after the tax.
Price
ST
18
12
10
8
7.
D.
10 12
Qua
(a) For the market for cigarettes without the tax.
Indicate:
(i)
Price paid by consumers
(ii)
Price paid by producers
(iii)
Quantity of cigarettes sold
(iv)
Buyer's reservation price
(v)
Seller's reservation price
3,

Consumer’s gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price and up to the equilibrium quantity. Consumer surplus is represented by area A.

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