Question 4 (a) Using a supply and demand diagram show the market for chocolate in equilibrium, where demand is more elastic than supply. On your diagram label the respective consumer and producer surpluses. Is this market Pareto efficient? Why or why not? (b) Assume that the Government imposes a per unit tax on the sellers of chocolate. Draw a new diagram showing the imposition of this tax on the market for chocolate. Does the imposition of this tax cause a Pareto improvement to the market? Explain. (c) Does the tax imposed in part (b) create a larger burden on producers or consumers, or do they share the burden of the tax in equal proportion? Justify your answer with reference to your diagram from part (b).
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This point represents the market price and quantity of chocolate. The consumer surplus is the area above the price line and below the demand curve, representing the difference between what consumers are willing to pay and what they actually pay. The producer Show more…
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