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Find and graph the Post Tax Consumer Surplus,Producer Surplus,Tax Revenue, Dead Weight Loss, and the economic...

Find and graph the Post Tax Consumer Surplus,Producer Surplus,Tax Revenue, Dead Weight Loss, and the economic incidence of the Tax

Demand is P=21-2Q

Supply is P=Q

Tax is 4$ per unit

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Homework Answers

Answer #1

In the graph below, a tax of 4 per unit is imposed on sellers.

21 - 2Q = Q + 4

3Q = 17

Q = 5.67 and P(consumers) = 9.67 while P(sellers) = 5.67

Consumers are paying a tax of (9.67 - 7) = 2.67 while sellers are paying (7 - 5.67) = 1.33

Tax incidence falls on consumers by 67% and 33% on sellers.

These are the post-tax conditions in market

CS = area ABC = 0.5*(21 - 9.67)*5.67 = 32.1

PS = area DEF = 0.5*(5.67 - 0)*5.67 = 16.1

DWL = area BGE = 0.5*(7 - 5.67)*4 = 2.67

Tax revenue = 4*5.67 = 22.67

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