Figure 8-6

-Refer to Figure 8-6.What would the reduction in consumer surplus caused by the tax be
A)$60
B)$70
C)$80
D)$100

Question

Figure 8-6
 
-Refer to Figure 8-6.What would the reduction in consumer surplus caused by the tax be
A)$60 
B)$70 
C)$80 
D)$100

Quizplus · Accepted Answer

The reduction in consumer surplus caused by the tax can be calculated as the difference between the consumer surplus without the tax and with the tax. Without the tax, the consumer surplus is the area above the supply curve and below the demand curve, up to the quantity consumed, which is 80 units at a price of $12 per unit. This consumer surplus is equal to (1/2) x ($12-$8) x 80 = $160. With the tax, the price paid by consumers is $14 per unit, and the quantity consumed is reduced to 60 units. The consumer surplus now is the area above the supply curve and below the demand curve, up to the quantity consumed, which is 60 units at a price of $14 per unit. This consumer surplus is equal to (1/2) x ($14-$8) x 60 = $80. Therefore, the reduction in consumer surplus caused by the tax is $160-$80=$80, which corresponds to option C.

As for the best choice, there is only one correct answer, which is C) $80.

Figure 8-6 -Refer to Figure 8-6.What Would the Reduction in Consumer Surplus