Consider a perfectly competitive market with market supply and market demand Suppose the government imposes an excise tax of $4 per unit on this market.What is total surplus (consumer surplus plus producer surplus) after the government imposes the tax?

Question

Consider a perfectly competitive market with market supply  and market demand  Suppose the government imposes an excise tax of $4 per unit on this market.What is total surplus (consumer surplus plus producer surplus) after the government imposes the tax?

Quizplus · Accepted Answer

Before the imposition of the tax, the equilibrium price and quantity were $46 and 30 units, respectively. After the imposition of the tax, the price paid by consumers increased to $50, while the price received by producers decreased to $42.

Consumer surplus = (1/2)*(46-50)*30 = $60 
Producer surplus = (1/2)*(42-11)*30 = $435

Total surplus = consumer surplus + producer surplus + tax revenue 
Tax revenue = $4*30 = $120 
Total surplus = $60 + $435 + $120 = $615

Therefore, the total surplus after the government imposes the tax is $144 (option C).

Consider a Perfectly Competitive Market with Market Supply and Market