a) Calculate the consumer surplus before tax.b)Calculate the produce surplus before the tax Question 5Suppose that the government imposes a tax on cigarettes. Use the diagram below to answer the questions. Dis the demand curve before tax, S is the supply curve before tax and ST is the supply curve after the tax.Price181010 18Qua(a) For the market for cigarettes without the tax, Indicate:Price paid by consumersPrice paid by producersQuantity of cigarettes sold(rv)Buyer's reservation price(V)Seller s reservation priceere to search

Answered: Calculate the consumer surplus before…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

a) Calculate the consumer surplus before tax. b)Calculate the produce surplus before the tax

Expert Solution

Step 1

Demand: - Demand is the relationship between the quantity demanded and the price of a good. There is an inverse relationship between quantity demanded and price, which means if the price of a good increases then the quantity demanded decreases and if the price of a good decreases then the quantity demanded increases.

Supply: - Supply is the relationship between the quantity supplied and the price of a good. There is a direct relationship between the quantity supplied and the price for normal goods which means if price increases quantity supplied increases and if price decreases quantity supplied also decreases.