The following figure shows the supply and demand curves in a competitive market for a good. The government is considering a $1.50 tax on this good.

-Refer to the above figure.If the $1.50 tax is collected from the producers of this good,the producer surplus will be ________.

Question

The following figure shows the supply and demand curves in a competitive market for a good. The government is considering a $1.50 tax on this good.
 
-Refer to the above figure.If the $1.50 tax is collected from the producers of this good,the producer surplus will be ________.

Quizplus · Accepted Answer

With the $1.50 tax, the new supply curve will be S2, which intersects the demand curve at a price of $5.50. The producer surplus is the area above the supply curve and below the market price. Without the tax, the producer surplus was $4.50 at the equilibrium price of $6. With the tax, the producer surplus is reduced to $2.25 ($3 = area A). Therefore, the correct answer is A) $2.25.

The Following Figure Shows the Supply and Demand Curves in a Competitive