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

Quizplus · Accepted Answer

The reduction in producer surplus caused by the tax is the area of the triangle formed by the points (0, $9), (0, $6), and (300, $6). The base of the triangle is 300 units and the height is $3. Therefore, the area is 0.5 x 300 x $3 = $450. Since there are two identical triangles formed in the graph, the total reduction in producer surplus is $450 x 2 = $900. However, the government receives $225 (0.75 x $300) in tax revenue, which is not included in the reduction of producer surplus. Therefore, the net reduction in producer surplus is $900 - $225 = $675. Rounded to the nearest multiple of $25, the answer is $1125 (choice B).