Suppose that a market is initially in equilibrium.The initial demand curve is The initial supply curve is Suppose that the government imposes a $3 tax on this market.What is the change in consumer surplus due to the tax?
A) $450.
B) $420.50.
C) $29.50.
D) $0.50.

Question

Suppose that a market is initially in equilibrium.The initial demand curve is  The initial supply curve is  Suppose that the government imposes a $3 tax on this market.What is the change in consumer surplus due to the tax?
A) $450. 
B) $420.50. 
C) $29.50. 
D) $0.50.

Quizplus · Accepted Answer

To find the change in consumer surplus, we first need to find the new quantity demanded and the new equilibrium price after the tax imposition. The tax shifts the supply curve upward by $3. The new equilibrium occurs where the new supply curve intersects the original demand curve. After the tax imposition, the new equilibrium quantity is 8 and the new equilibrium price is $7 ($4.5 + $3). Before the tax imposition, the consumer surplus was ($10 - $5) * (12 - 4.5) / 2 = $37.13. After the tax imposition, the consumer surplus is ($10 - $7) * (8 - 4.5) / 2 = $7.13. Therefore, the change in consumer surplus is $7.13 - $37.13 = -$29. This means that consumers lose $29.50 in surplus due to the tax. So, the answer is C.

Suppose That a Market Is Initially in Equilibrium