In the diagram above,D represents the original demand curve,S represents the original supply curve,and S' represents the supply curve once a per-unit tax is imposed.
-Refer to the diagram above.Producer surplus after the tax is imposed is represented by the area
A) HJC.
B) AKC.
C) GJK.
D) EGJCI.
E) AGJH.

Question

In the diagram above,D represents the original demand curve,S represents the original supply curve,and S' represents the supply curve once a per-unit tax is imposed.
-Refer to the diagram above.Producer surplus after the tax is imposed is represented by the area
A) HJC. 
B) AKC. 
C) GJK. 
D) EGJCI. 
E) AGJH.

Quizplus · Accepted Answer

Producer surplus before the tax is imposed is represented by the area above the supply curve and below the equilibrium price (GJK). After the tax is imposed, the new equilibrium price shifts up to P', and producer surplus is now represented by the area above the supply curve (S') and below P' (CJK). Thus, the new producer surplus is the difference between the total revenue received by producers (represented by the area of the rectangle EGJC) and the total amount of the tax paid (represented by the area of the triangle ECK). The area of the triangle ECK is equal to the per-unit tax multiplied by the quantity demanded (or supplied) at the new equilibrium quantity (Q'). Therefore, the new producer surplus is represented by the area of the trapezoid GJKC, which is the area above the new supply curve (S') and below the new equilibrium price (P').

In the Diagram Above,D Represents the Original Demand Curve,S Represents