Figure 8-6

-Refer to Figure 8-6.Which of the following statements is correct?
A)Total surplus before the tax was imposed amounted to $225.
B)After the tax is imposed, consumer surplus amounts to 25 percent of its pre-tax value.
C)After the tax is imposed, the sum of producer surplus and consumer surplus amounts to 36 percent of its pre-tax value.
D)All of the above are correct.

Question

Figure 8-6
 
-Refer to Figure 8-6.Which of the following statements is correct?
A)Total surplus before the tax was imposed amounted to $225. 
B)After the tax is imposed, consumer surplus amounts to 25 percent of its pre-tax value. 
C)After the tax is imposed, the sum of producer surplus and consumer surplus amounts to 36 percent of its pre-tax value. 
D)All of the above are correct.

Quizplus · Accepted Answer

We can see from the graph that before the tax is imposed, total surplus (area A+B+C) amounts to $225. 
After the tax, consumer surplus is reduced to area A only, which amounts to $75, or 25 percent of the pre-tax total surplus. 
However, the sum of producer surplus and consumer surplus, which is now represented by areas A+B, amounts to $81, or 36 percent of the pre-tax total surplus. Therefore, option C is the correct statement. Option A is incorrect because it refers to the pre-tax total surplus only, without considering the impact of the tax. Option B is incorrect because it only refers to consumer surplus, without considering the broader concept of total surplus.

Figure 8-6 -Refer to Figure 8-6.Which of the Following Statements Is Correct