Question

Graph these coordinates and answer the questions: (you will also have to draw a $4 tax on top of S and, separately, a $6 price floor). Initial equilibrium is (4, $4)

$	S qty	D qty
X	Y	Y
0	0	8
$2	2	6
$4	4	4
$6	6	2
$8	8	0

Question 1 (1 point)

What is the total revenue of the basic S&D curves at its initial equilibrium?

a	0
b	Between $1 and $10
c	Between $10 and $20
d	Over $20

Question 2 (1 point)

What is the Producer Surplus of the basic S&D curves?

a	Under $4
b	Between $4 and $10
c	Between $10 and $20
d	Over $20

Question 3 (1 point)

With a $4 per unit tax, what is the total revenue? (total spent by consumer)

a	Less than $5
b	$5 to $7.49
c	$7.50 to $9.99
d	Over $10

Answer 1

1. C. Between $10 and $20

reason: from the table we see that equilibrium quantity =4 and equilibrium price =$4. Total revenue= price *quantity that is, 4*4= 16 (between 10 and 20).

2. b. Between $4 and $ 10

reason: producer surplus = 1/2* 4*4 = 8 (between 4 and 10.)

3. d. Over $10.

reason: when $4 per unit tax is levied, supply curve moves up by the amount of tax and meets demand curve at a new point where price =$6 and quantity = 2. So total revenue = price * quantity , that is, 6*2= 12( over 10).