Figure: Soda Market How much consumer surplus is lost because of a 70¢ tax?

Question

Figure: Soda Market  How much consumer surplus is lost because of a 70¢ tax?

Quizplus · Accepted Answer

To find the consumer surplus lost due to a 70¢ tax on soda, we need to find the area of the triangle below the new price line (which includes the tax) and above the original demand curve. The base of the triangle is 140 million cans (the quantity demanded at the new price of $1.70), and the height is ($2.40 - $1). Using the formula for the area of a triangle, 1/2 * base * height, we get: 1/2 * 140,000,000 * ($2.40 - $1) = $69,000,000. Therefore, the best choice is C, as it is the only option that matches this calculated value.

Figure: Soda Market How Much Consumer Surplus Is Lost