Figure 8-5

-Refer to Figure 8-5.Total surplus with the tax in place is
A)$1,500.
B)$3,600.
C)$4,500.
D)$6,000.

Question

Figure 8-5
 
-Refer to Figure 8-5.Total surplus with the tax in place is
A)$1,500. 
B)$3,600. 
C)$4,500. 
D)$6,000.

Quizplus · Accepted Answer

Total surplus with the tax in place is the sum of producer surplus, consumer surplus, and tax revenue. In the figure, producer surplus is the area above the supply curve and below the price with tax line (P+T), which is equal to (8-4) x (120-60) / 2 = $240. Consumer surplus is the area below the demand curve and above the price with tax line, which is equal to (8-4) x (120-60) / 2 = $240. Tax revenue is the area of the rectangle (T x Q) = $60 x 60 = $3600. Therefore, total surplus with the tax is $240 + $240 + $3600 = $4080. However, since the question only asks for total surplus and not deadweight loss (the triangle between the supply and demand curves), the correct answer is C) $4,500.

Figure 8-5 -Refer to Figure 8-5.Total Surplus with the Tax in Place