Table 12-4

-Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $5.00 to $7.00.Total consumer surplus
A) falls by less than the tax revenue generated.
B) falls by more than the tax revenue generated.
C) falls by the same amount as the tax revenue generated.
D) will not fall since Jennifer will no longer be in the market.

Question

Table 12-4
 
-Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $5.00 to $7.00.Total consumer surplus
A) falls by less than the tax revenue generated. 
B) falls by more than the tax revenue generated. 
C) falls by the same amount as the tax revenue generated. 
D) will not fall since Jennifer will no longer be in the market.

Quizplus · Accepted Answer

Total consumer surplus before the tax is (1/2)(5-2)(10-5) = $7.50. 
After the tax, the price increases to $7.00 and consumer surplus is (1/2)(7-2)(10-7) = $7.50 - $2.50 = $5.00. 
Therefore, consumer surplus falls by $2.50, which is more than the tax revenue generated ($2.00). So, choice B is correct. 
Choice A is incorrect because consumer surplus falls by more than the tax revenue generated. 
Choice C is incorrect because consumer surplus falls by more than the tax revenue generated. 
Choice D is irrelevant information.

Table 12-4 -Refer to Table 12-4.Suppose That the Government Imposes a $2