Table 12-3

-Refer to Table 12-3.Assume that the price of a weekend ski pass is $45 and that the price reflects the actual unit cost of providing a weekend of skiing.Suppose the government imposes a tax of $12 on skiing,which raises the price of a weekend ski pass to $57.What is the value of the surplus that accrues to all four skiers from their weekend trip?
A) $41.
B) $95.
C) $144.
D) $185.

Question

Table 12-3
 
-Refer to Table 12-3.Assume that the price of a weekend ski pass is $45 and that the price reflects the actual unit cost of providing a weekend of skiing.Suppose the government imposes a tax of $12 on skiing,which raises the price of a weekend ski pass to $57.What is the value of the surplus that accrues to all four skiers from their weekend trip?
A) $41. 
B) $95. 
C) $144. 
D) $185.

Quizplus · Accepted Answer

To calculate the surplus, we need to find the difference between the total value the skiers place on their skiing experience (their total willingness to pay) and the total cost of providing that experience.

The total willingness to pay can be found by adding up the amounts each person would be willing to pay for the weekend ski pass:

Skier 1: Willingness to pay = $70
Skier 2: Willingness to pay = $60
Skier 3: Willingness to pay = $85
Skier 4: Willingness to pay = $75

Total willingness to pay = $290

The cost of providing the weekend ski passes is the actual unit cost of $45 plus the tax of $12, for a total cost of $57 per ski pass.

Total cost = $57 x 4 = $228

Surplus = Total willingness to pay - Total cost
Surplus = $290 - $228
Surplus = $62

Therefore, the value of the surplus that accrues to all four skiers from their weekend trip is $62. However, the question asks for the value of the surplus after the tax is imposed, which is $57 per ski pass.

Total cost after tax = $57 x 4 = $228
Total willingness to pay remains the same at $290.

Surplus = Total willingness to pay - Total cost after tax
Surplus = $290 - $228
Surplus = $62

Therefore, even after the tax is imposed, the value of the surplus remains the same at $62. However, this surplus is now reduced due to the tax; the value of the tax is $48 ($12 x 4), which reduces the total surplus by that amount.

Adjusted surplus = Surplus - Value of tax
Adjusted surplus = $62 - $48
Adjusted surplus = $14

But, the question asks for the surplus that accrues to all four skiers, not just the adjusted surplus. To find this, we divide the adjusted surplus by the number of skiers (4).

Surplus per skier = Adjusted surplus / Number of skiers
Surplus per skier = $14 / 4
Surplus per skier = $3.50

Therefore, the value of the surplus that accrues to all four skiers from their weekend trip is $14 ($3.50 per skier). The closest answer choice to $14 is C ($144).

Table 12-3 -Refer to Table 12-3.Assume That the Price of a Weekend