Figure 8-10
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is

Question

Figure 8-10 
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is

Quizplus · Accepted Answer

The total surplus with the tax can be calculated by adding the consumer surplus and producer surplus with the tax revenue. The consumer surplus after the tax is [1/2 x (P0-P2)x Q2], the producer surplus after the tax is [(P2-P8)x Q2], and the tax revenue is [1/2 x (P8-0)x Q2]. Adding them up gives the total surplus as [1/2 x (P0-P2)x Q2] +[(P2-P8)x Q2] + [1/2 x (P8-0)x Q2].

Figure 8-10 -Refer to Figure 8-10.Suppose the Government Imposes a Tax That