Question

Understanding the implications of taxes on welfare The following graph represents the demand and supply for pinckneys (an imaginary product). The black point (plus symbol) indicates the pre-tax equilibrium. Suppose the government has just decided to impose a tax on this market; the grey points (star symbol) indicate the after-tax scenario. Demand Supply 21.00 [18.00* { QUANTITY (Pinckneys) Complete the following table, given the information presented on the graph: Result Value Per-unit tax $6.00 Price consumers pay before tax $18.00 Equilibrium quantity before tax 16.0 In the following table, indicate which areas on the previous graph correspond to each concept: Check all that apply: Concept Consumer surplus before the tax is imposed Producer surplus after the tax is imposed Deadweight loss after the tax is imposed

          Understanding the implications of taxes on welfare

The following graph represents the demand and supply for pinckneys (an imaginary product). The black point (plus symbol) indicates the pre-tax equilibrium. Suppose the government has just decided to impose a tax on this market; the grey points (star symbol) indicate the after-tax scenario.

Demand
Supply
21.00
[18.00*
{
QUANTITY (Pinckneys)

Complete the following table, given the information presented on the graph:

Result Value 
Per-unit tax $6.00 
Price consumers pay before tax $18.00 
Equilibrium quantity before tax 16.0

In the following table, indicate which areas on the previous graph correspond to each concept: Check all that apply:

Concept 
Consumer surplus before the tax is imposed 
Producer surplus after the tax is imposed 
Deadweight loss after the tax is imposed

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Added by Luisa K.

Principles of Economics

Gregory Mankiw 8th Edition

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Solved by Expert Umar Sohail Qureshi

01/10/2022

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Understanding the implications of taxes on welfare The following graph represents the demand and supply for pinckneys (an imaginary product). The black point (plus symbol) indicates the pre-tax equilibrium. Suppose the government has just decided to impose a tax on this market; the grey points (star symbol) indicate the after-tax scenario. Demand Supply 21.00 [18.00* { QUANTITY (Pinckneys) Complete the following table, given the information presented on the graph: Result Value Per-unit tax $6.00 Price consumers pay before tax $18.00 Equilibrium quantity before tax 16.0 In the following table, indicate which areas on the previous graph correspond to each concept: Check all that apply: Concept Consumer surplus before the tax is imposed Producer surplus after the tax is imposed Deadweight loss after the tax is imposed

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00:01 Okay, so for this question, let's first say draw the original growth.

00:05 So the original growth, quantity, and price, demand curve, and supply curve.

00:15 So if there's no tax burden, originally the equivalent price is 5, and the equivalent quantity is 10.

00:24 And because of tax burden, that is 50 cents per hamburger.

00:32 So as a result, we will see a supply curve decrease.

00:37 A supply curve, a supply curve shift to the left.

00:40 So it would be the new supply curve.

00:42 And this upper shift, this amount of shift, is actually 50 cents.

00:49 Okay.

00:50 So after the change, the new equilibrium has a price of 5 .2 and has an equilibrium quantity of 9.

01:02 So basically, that's the new equilibrium compared with the original one.

01:06 And you could see that since this is a 50 cents change, and this point is 5 .2, so we definitely know this part, this amount should be 4 .7, right, because it's a 50 cents per shift of it.

01:25 Okay, so that is 4 .4.

01:26 Then we can just mark the consumer surplus, producer surplus, and then we lost after it.

01:33 So the new consumer surplus, because the new price for the consumer is 5 .2.

01:39 So the new consumer surplus should be this triangle here...

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