Figure 8-5

-Refer to Figure 8-5.What would happen to producer surplus if the tax were imposed on the buyer
A)It would fall by $600.
B)It would fall by $900.
C)It would fall by $1800.
D)It would fall by $2400.

Question

Figure 8-5
 
-Refer to Figure 8-5.What would happen to producer surplus if the tax were imposed on the buyer
A)It would fall by $600. 
B)It would fall by $900. 
C)It would fall by $1800. 
D)It would fall by $2400.

Quizplus · Accepted Answer

When the tax is imposed on the buyer, the demand curve will shift leftward by the amount of tax. As a result, the equilibrium price will fall and the equilibrium quantity will also fall. The new equilibrium price will be $12 and the new equilibrium quantity will be 400 units. The producer surplus will fall by the area of the rectangle KLMN, which is equal to ($4-$2) x 400 x 0.5 = $400. Therefore, the producer surplus will fall by $400 x 4.5 = $1800.

Figure 8-5 -Refer to Figure 8-5.What Would Happen to Producer Surplus If