EBK MICROECONOMICS
2nd Edition
ISBN: 8220103679701
Author: List
Publisher: YUZU
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Question
Chapter 10, Problem 6P
(a)
To determine
The table depicting the
(b)
To determine
(c)
To determine
Deadweight loss when supply is perfectly inelastic.
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Consider the market for commercial fans. The following graph shows the demand and supply for commercial fans before the government imposes any taxes.
First, use the black point (plus symbol) to indicate the equilibrium price and quantity of commercial fans in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.
Suppose the government imposes an excise tax on commercial fans. The black line on the following graph shows the tax wedge created by a tax of $50 per fan.
First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer…
Consider the market for commercial fans. The following graph shows the demand and supply for commercial fans before the government imposes any taxes.
First, use the black point (plus symbol) to indicate the equilibrium price and quantity of commercial fans in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.
Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax.
Note: You can determine the areas of different portions of the graph by selecting the relevant area.
Before Tax
After Tax
(Dollars)
(Dollars)
Before Tax (Dollars)…
If buyers are required to pay a tax on top of the price, buyers' willingness to pay will:
decrease and the demand curve will shift up.
increase and the demand curve will shift down.
increase and the demand curve will shift up.
decrease and the demand curve will shift down.
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