Consider the market for air conditioning units. The following graph shows the demand and supply for air conditioning units before the governmentimposes any taxes.First, use the black point (plus symbol) to indicate the equilibrium price and quantity of air conditioning units in the absence of a tax. Then use thegreen point (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 air conditioner)500450PRICE (Dollars per air conditioner)400300250200150100500500450400350300250Suppose the government imposes an excise tax on air conditioning units. The black line on the following graph shows the tax wedge created by a taxof $150 per air conditioner.200First, 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.150100Demand500 140 2800Before TaxDemandSupply420 560 700 840 980 1120 1260 1400QUANTITY (Air conditioners)Tax WedgeAfter Tax+SupplyEquilibrium0 140 280 420 560 700 840 980 1120 1260 1400QUANTITY (Air conditioners)Consumer SurplusProducer SurplusTax RevenueΔConsumer Surplus◇Producer SurplusDeadweight Loss Complete 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.Note: You can determine the areas of different portions of the graph by selecting the relevant area.Consumer SurplusProducer SurplusTax RevenueDeadweight LossBefore Tax(Dollars)00After Tax(Dollars)

Producer surplus:It is the portion above the supply line and below the price line. Producers surplus…

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. Before Tax (Dollars) Consumer Surplus Producer Surplus Tax Revenue Deadweight Loss 0 After Tax (Dollars)

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. Before Tax (Dollars) Consumer Surplus Producer Surplus Tax Revenue Deadweight Loss 0 After Tax (Dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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