Stacy places a $20 value on a bottle of wine,and Andrea places a $17 value on it.The equilibrium price for a bottle of wine is $15.Suppose the government levies a tax of $3 on each bottle of wine,and the equilibrium price of a bottle of wine increases to $18.What is total consumer surplus after the tax is levied?

Question

Quizplus · Accepted Answer

After the tax, Stacy still buys the wine since her value ($20) is greater than the new price ($18), gaining a consumer surplus of $2 ($20 - $18). Andrea does not buy the wine as her value ($17) is less than the new price. Total consumer surplus is $2.

Stacy Places a $20 Value on a Bottle of Wine,and