00:01
Okay, this problem has original supply equilibrium at a quantity of 60, price of 50, and we get an excise tax, which shifts the supply curve up by an amount equal to that tax.
00:17
And the reason, the way to think about that is for a given quantity, the suppliers were willing to supply, for example, at 60, at a price of 50, and now they will supply the same quantity at a price of 50 plus the tax.
00:36
So this shift is 50, i mean, is the tax.
00:40
And there's another point here i need to write in.
00:43
And it's this green line and x.
00:49
So the first question is, what's the amount of the tax? well, since we know that the tax is the vertical shift in the supply curve, and we know that the supply curve went from here, where it's 5, to the y -intercept goes from 5 to 45, the tax is equal to that difference, so it's 45 minus 5, or 40.
01:12
Okay, and then the next question is, what is x? well, x, again, represents the vertical, or the difference between this point where price is 70 and this point where the price is x is 40.
01:31
So x must be 70 minus 40.
01:42
So x must be 30.
01:43
And what does that represent? well, that represents the price that the producers will get when the market price, equilibrium price is 70 and a $40 tax is paid, then there's 30 left.
02:00
So producer's price, that's equal to the producer's price.
02:04
So now we're asked to evaluate the various surpluses.
02:08
The consumer surplus before the tax is the area above the price and below the demand curve.
02:17
It represents the amount that those initial incremental consumers were willing to pay along the demand curve in excess of the price.
02:25
So it's a triangle here.
02:28
And so consumer surplus is equal to this triangle, which has a base of 60 and a height of 100 minus 50.
02:36
So it's 60 times 50 divided by 2, which is 1 ,500.
02:42
And the producer surplus is the area below.
02:47
I'm not going to do it in, i'll do it in yellow.
02:51
It's the area below the price and above the supply curve.
02:55
It represents the price or the amount in addition to what suppliers were willing to supply that they were able to get.
03:06
So producer surplus is a triangle and it's at a base of 60...