Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.
-Refer to Figure 8-8.One effect of the tax is to

Question

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8.One effect of the tax is to

Quizplus · Accepted Answer

The tax reduces consumer surplus by the triangular area between the new equilibrium price ($16) and the original demand curve, from Q1 to Q2, which is ($12-8)/2 x (170-120) = $360/2 = $180. It also reduces producer surplus by the triangular area between the new equilibrium price ($16) and the original supply curve, from Q1 to Q2, which is ($16-6)/2 x (120-70) = $50/2 = $25. Finally, the tax creates a deadweight loss of the triangular area between the demand and supply curves, from Q2 to Q3, which is ($16-12)/2 x (170-120) - ($16-6)/2 x (120-70) = $20. Therefore, all of the above are correct.

Figure 8-8 Suppose the Government Imposes a $10 Per Unit Tax on Tax