Consider a perfectly competitive market with market supply $Q ^ { s } = - 2 + P$ and market demand $Q ^ { d } = 30 - P$. Suppose the government imposes an excise tax of $\$ 4$ per unit on this market.
What is total surplus (consumer surplus plus producer surplus) before the government imposes the tax?
A) 72
B) 98
C) 144
D) 196

Question

Quizplus · Accepted Answer

Before the tax, equilibrium is where supply equals demand: $-2 + P = 30 - P$. Solving gives $P = 16$ and $Q = 14$. Consumer surplus is $\frac{1}{2} \times (30 - 16) \times 14 = 98$. Producer surplus is $\frac{1}{2} \times (16 - 2) \times 14 = 98$. Total surplus is $98 + 98 = 196$.

Consider a Perfectly Competitive Market with Market Supply Qs=−2+PQ ^ { s } = - 2 + PQs=−2+P

Consider a Perfectly Competitive Market with Market Supply $Q ^ { s } = - 2 + P$