Refer to the scenario above.Suppose that the government forces the seller to produce 10 loaves and sets the price per loaf at $1.80.At the same time,the government collects a lump-sum tax from those buyers whose reservation values are above $1.80 to subsidize those with reservation values below $1.80.The amount of the lump-sum tax is the same for all buyers who are taxed.What is the social surplus? What is the difference between the largest and the smallest among buyers' surpluses?

Question

Quizplus · Accepted Answer

The social surplus is calculated by considering the difference between the reservation values and the price, adjusted for the lump-sum tax/subsidy. The difference between the largest and smallest buyers' surpluses is determined by the range of reservation values and the imposed price.

Refer to the Scenario Above