Question

	Without Tax	With Tax	Change
Consumer surplus	1+2+3
Producer Surplus	4+5+6
Government	0		Gain of 2+4
Total Surplus	1+2+3+4+5+6		Loss of 5+6

12. What is the consumer surplus after the tax and what changed?

a) the consumer surplus is represented by 1, 2+3 was lost

b) the consumer surplus is represented by 4, 5+6 was lost

c) the consumer surplus is represented by 1+2+3+4+5+6 and nothing was lost

d) the consumer surplus remained the same and nothing was lost.

13. What is the producer surplus after the tax and what changed?

a) the producer surplus is represented by 6, and 4+5 was lost

b) the producer surplus is represented by 1 and 2+3 was lost

c) the producer surplus is represented by 1+2+3+4+5+6 and nothing was lost

d) the producer surplus remained the same and nothing was lost

Answer 1

Question 12

Consumer surplus before tax = 1+2+3

Gain to government = 2+4

Dead weight loss = 3+5

So,

Out of consumer surplus, area (2+3) is lost to government and dead weight loss.

Thus,

Consumer surplus after tax is represented by 1.

The loss in consumer surplus equals (2+3).

Hence, the correct answer is the option (a).

Question 13

Producer surplus before tax = 4+5+6

Gain to government = 2+4

Dead weight loss = 3+5

So,

Out of producer surplus, area (4+5) is lost to government and dead weight loss.

Thus,

Producer surplus is represented by area 6.

The loss in producer surplus equals (4+5).

Hence, the correct answer is the option (a).