Refer to Scenario 19.4 below to answer the question(s) that follow.
SCENARIO 19.4: Suppose demand for widgets is given by the equation P = 10 - 0.25Q. Originally, the price of the good is $5 per unit. When a tax of $1 per unit is imposed, the price of the good rises to $6 per unit.
-Refer to Scenario 19.4. Prior to the imposition of the tax consumer surplus was ________ and after the tax was imposed consumer surplus was ________.

Question

Quizplus · Accepted Answer

Before the tax, the price is $5. Using the demand equation P = 10 - 0.25Q, we find Q by setting P to $5: $5 = 10 - 0.25Q, solving for Q gives us 20 units. Consumer surplus is the area of a triangle with a base of 20 units and a height of $5 (from $10 to $5), so (1/2)*20*5 = $50. After the tax, the price is $6. Using the same method, $6 = 10 - 0.25Q gives us Q = 16 units. The new consumer surplus is the area of a triangle with a base of 16 units and a height of $4 (from $10 to $6), so (1/2)*16*4 = $32.