Kyle places a $10 value on a glass of red wine,and Keith places an $8 value on it.If there is no tax on glasses of red wine,the price of a glass of red wine reflects the cost of making it.The equilibrium price for a glass of red wine is $6.Suppose the government levies a tax of $3 on each glass of red wine,and the equilibrium price of a glass of red wine increases to $9.What is total consumer surplus after the tax is levied?
A)$1
B)$3
C)$4
D)$6

Question

Quizplus · Accepted Answer

After the tax, Kyle's consumer surplus is $1 ($10 value - $9 price), and Keith does not buy the wine as his value is less than the price. Total consumer surplus is $1.

Kyle Places a $10 Value on a Glass of Red