Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding.Rebecca values dog sitting for the weekend at $200.Susan is willing to dog sit for Rebecca so long as she receives at least $175.Rebecca and Susan agree on a price of $185.Suppose the government imposes a tax of $30 on dog sitting.The tax has made Rebecca and Susan worse off by a total of
A)$30.
B)$25.
C)$10.
D)$5.

Question

Quizplus · Accepted Answer

The tax reduces the surplus by $25. Initially, Rebecca's surplus was $15 ($200 - $185) and Susan's was $10 ($185 - $175). With the tax, the price effectively becomes $215 ($185 + $30), so Rebecca's surplus becomes negative, and Susan's surplus is reduced to $0. The total loss in surplus is $25.

Suppose Rebecca Needs a Dog Sitter So That She Can