Figure 8-10
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is

Question

Figure 8-10 
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the producer surplus is

Quizplus · Accepted Answer

Producer surplus is the area above the supply curve and below the equilibrium price (P5) and quantity (Q5) without any tax. Therefore, the producer surplus is:
(P5-0) x Q5
After the imposition of tax, the new equilibrium quantity becomes Q2 which is lower than the initial equilibrium quantity. So, the new producer surplus is the area above the supply curve and below the new equilibrium price P8 (after-tax price) and quantity Q2. Hence, the correct option is (B).
(P8-0) x Q2 is the consumer surplus after the tax.

Figure 8-10 -Refer to Figure 8-10. Suppose the Government Imposes a Tax