Refer to Scenario 19.3 below to answer the question(s) that follow.
SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit.
-Refer to Scenario 19.3. 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 quantity demanded at a price of $10 is found by setting P = 10 in the demand equation and solving for Q: 10 = 20 - 0.5Q, which gives Q = 20 units. Consumer surplus is the area of a triangle with a base of 20 units (from Q = 0 to Q = 20) and a height of 10 units (from P = 10 to P = 20, the maximum price consumers are willing to pay), so consumer surplus is 0.5 * 20 * 10 = $100. After the tax, the price consumers pay is $12, so setting P = 12 in the demand equation gives 12 = 20 - 0.5Q, which solves to Q = 16 units. The new consumer surplus is the area of a triangle with a base of 16 units and a height of 8 units (from P = 12 to P = 20), so consumer surplus is 0.5 * 16 * 8 = $64.