The following figure depicts the market for a certain good and the incidence of a tax on consumers.

-Refer to the figure above.The after-tax social surplus is ________.

Question

The following figure depicts the market for a certain good and the incidence of a tax on consumers.
 
-Refer to the figure above.The after-tax social surplus is ________.

Quizplus · Accepted Answer

The after-tax social surplus is the sum of consumer surplus and producer surplus after the tax has been imposed. In this case, the tax on consumers shifts the demand curve down by the amount of the tax, reducing the quantity demanded and lowering both consumer surplus and producer surplus. Region 1 represents the producer surplus after the tax, while region 4 represents the consumer surplus after the tax. Therefore, the after-tax social surplus is represented by the sum of regions 1 and 4. Regions 2 and 3 represent the deadweight loss caused by the tax, which is a loss of social surplus that occurs when the quantity of the good produced and consumed is less than the efficient level. Region 5 represents the revenue collected by the government from the tax.

The Following Figure Depicts the Market for a Certain Good