Scenario 12-1
Max and Mark enjoy beer. Max places a $23 value on a bottle of beer, and Mark places a $18 value on it. The equilibrium price for a bottle of beer is $14.
-Refer to Scenario 12-1. Suppose the government levies a tax of $6 on each bottle of beer, and the equilibrium price of a bottle of beer increases to $20. What is total consumer surplus after the tax is levied?
A)$0
B)$3
C)$13
D)$20

Question

Quizplus · Accepted Answer

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. After the tax, Max is willing to pay $23 but pays $20, so his surplus is $3. Mark values the beer at $18, which is now less than the price with tax ($20), so he does not buy it and has no surplus. Total consumer surplus is $3.

Scenario 12-1 Max and Mark Enjoy Beer. Max Places a $23 Value