Figure 8-6

-Refer to Figure 8-6.As a result of the tax,
A)consumer surplus decreases by $65; producer surplus decreases by $85; tax revenue of $120 is generated; and the deadweight loss of the tax is $30.
B)consumer surplus decreases by $75; producer surplus decreases by $75; tax revenue of $120 is generated; and the deadweight loss of the tax is $30.
C)consumer surplus decreases by $80; producer surplus decreases by $80; tax revenue of $120 is generated; and the deadweight loss of the tax is $40.
D)consumer surplus decreases by $120; producer surplus decreases by $120; tax revenue of $200 is generated; and the deadweight loss of the tax is $40.

Question

Figure 8-6
 
-Refer to Figure 8-6.As a result of the tax,
A)consumer surplus decreases by $65; producer surplus decreases by $85; tax revenue of $120 is generated; and the deadweight loss of the tax is $30. 
B)consumer surplus decreases by $75; producer surplus decreases by $75; tax revenue of $120 is generated; and the deadweight loss of the tax is $30. 
C)consumer surplus decreases by $80; producer surplus decreases by $80; tax revenue of $120 is generated; and the deadweight loss of the tax is $40. 
D)consumer surplus decreases by $120; producer surplus decreases by $120; tax revenue of $200 is generated; and the deadweight loss of the tax is $40.

Quizplus · Accepted Answer

From the graph, we can see that the tax shifts the supply curve upwards by $40, which reduces consumer surplus by $80 (area A + B), and producer surplus by $80 (area C + D). The tax revenue generated is the rectangle EFGH which is equal to $120 ($40 x 3). The deadweight loss of the tax is the triangle BCF which is equal to $40 (($40/2) x 2) because it represents the loss in consumer and producer surplus that results from the tax discouraging trade. Therefore, the correct answer is C: consumer surplus decreases by $80; producer surplus decreases by $80; tax revenue of $120 is generated; and the deadweight loss of the tax is $40.

Figure 8-6 -Refer to Figure 8-6.As a Result of the Tax