Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The consumer surplus with the tax is:

Question

Quizplus · Accepted Answer

The consumer surplus with the tax is $7.11 million. This is because the tax shifts the supply curve up by $0.50, which reduces the quantity supplied at each price. This in turn reduces the consumer surplus, which is the area below the demand curve and above the supply curve.

Suppose the Market Demand Function for Ice Cream Is Qd

Suppose the Market Demand Function for Ice Cream Is Q^d