2. Taxes and welfareConsider the market for designer purses. The following graph shows the demand and supply for designer purses before the government imposes anytaxes.First, use the black point (plus symbol) to indicate the equilibrium price and quantity of designer purses in the absence of a tax. Then use the greenpoint (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamondsymbol) to shade the area representing total producer surplus (PS) at the equilibrium price.PRICE (Dollars per purse)504540353025151050H0Demand80160SupplyBefore Tax240 320 400 480 560 640 720 800QUANTITY (Purses)+EquilibriumAConsumer SurplusProducer SurplusSuppose the government imposes an excise tax on designer purses. The black line on the following graph shows the tax wedge created by a tax of$20 per purse. First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade thearea representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producersurplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss.PRICE (Dollars per purse)5045403530 Tax Wedge105Demand00 80 160 240 320 400 480 560 640 720 800QUANTITY (Purses)SupplyConsumer SurplusProducer SurplusAfter TaxTax RevenueDeadweight LossComplete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumersurplus, producer surplus, tax revenue, and deadweight loss after the tax.Tax RevenueNote: You can determine the areas of different portions of the graph by selecting the relevant area.After Tax(Dollars)Before Tax(Dollars)Consumer Surplus00Producer SurplusDeadweight Loss

The point of intersection of the demand and supply curve is called the equilibrium point. The price…

area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss. PRICE (Dollars per purse) 50 45 40 35 30 Tax Wedge 25 20 5 10 5 Demand 0 0 80 160 Consumer Surplus Producer Surplus Tax Revenue Supply Deadweight Loss After Tax 240 320 400 480 560 640 720 800 QUANTITY (Purses) Before Tax (Dollars) 0 0 Tax Revenue Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax. Note: You can determine the areas of different portions of the graph by selecting the relevant area. After Tax (Dollars) A Consumer Surplus ducer Surplus Deadweight Loss ?

area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss. PRICE (Dollars per purse) 50 45 40 35 30 Tax Wedge 25 20 5 10 5 Demand 0 0 80 160 Consumer Surplus Producer Surplus Tax Revenue Supply Deadweight Loss After Tax 240 320 400 480 560 640 720 800 QUANTITY (Purses) Before Tax (Dollars) 0 0 Tax Revenue Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax. Note: You can determine the areas of different portions of the graph by selecting the relevant area. After Tax (Dollars) A Consumer Surplus ducer Surplus Deadweight Loss ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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