Graph 8-3
-According to Graph 8-3, the reduction in consumer surplus caused by the tax is:
A)$750
B)$1125
C)$375
D)$1000

Question

Graph 8-3  
-According to Graph 8-3, the reduction in consumer surplus caused by the tax is:
A)$750 
B)$1125 
C)$375 
D)$1000

Quizplus · Accepted Answer

To find the reduction in consumer surplus, we need to find the area of the triangle formed by the original equilibrium price ($15), the new equilibrium price after the tax ($20), and the quantity demanded at the new price (25). The area of this triangle is 1/2 x ($20-$15) x 25 = $62.50. Since this reduction occurs every month, the total reduction in consumer surplus for a year is $62.50 x 12 = $750, which corresponds to answer choice B.