Consider the market for air conditioning units. The following graph shows the demand and supply for air conditioning units before the government imposes 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 the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. PRICE (Dollars per air conditioner) 400 360 PRICE (Dollars per air conditioner) 320 280 240 200 160 120 80 40 0 400 360 320 280 200 160 Suppose the government imposes an excise tax on air conditioning units. The black line on the following graph shows the tax wedge created by a tax of $160 per air conditioner. 240 Tax Wedge 120 Demand First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the 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. ? 80 0 120 240 40 0 Supply Demand Before Tax 360 480 600 720 840 960 1080 1200 QUANTITY (Air conditioners) Supply Equilibrium After Tax A 0 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Air conditioners) Consumer Surplus Producer Surplus Tax Revenue A Consumer Surplus (?) Producer Surplus Deadweight Loss
Consider the market for air conditioning units. The following graph shows the demand and supply for air conditioning units before the government imposes 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 the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. PRICE (Dollars per air conditioner) 400 360 PRICE (Dollars per air conditioner) 320 280 240 200 160 120 80 40 0 400 360 320 280 200 160 Suppose the government imposes an excise tax on air conditioning units. The black line on the following graph shows the tax wedge created by a tax of $160 per air conditioner. 240 Tax Wedge 120 Demand First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the 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. ? 80 0 120 240 40 0 Supply Demand Before Tax 360 480 600 720 840 960 1080 1200 QUANTITY (Air conditioners) Supply Equilibrium After Tax A 0 120 240 360 480 600 720 840 960 1080 1200 QUANTITY (Air conditioners) Consumer Surplus Producer Surplus Tax Revenue A Consumer Surplus (?) Producer Surplus Deadweight Loss
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the market for air conditioning units. The following graph shows the demand and supply for air conditioning units before the government
imposes 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 the
green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond
symbol) to shade the area representing total producer surplus (PS) at the equilibrium price.
360
Demand
320
280
K
240
200
160
Supply
PRICE (Dollars per air conditioner)
400
120
PRICE (Dollars per air conditioner)
80
40
0
400
360
320
280
Suppose the government imposes an excise tax on air conditioning units. The black line on the following graph shows the tax wedge created by a tax
of $160 per air conditioner.
First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the
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.
200
240 Tax Wedge
160
120
0 120
80
40
0
Before Tax
240 360 480 600 720 840 960 1080 1200
QUANTITY (Air conditioners)
Demand
Supply
++
Equilibrium
After Tax
Consumer Surplus
0 120 240 360 480 600 720 840 960 1080 1200
QUANTITY (Air conditioners)
Producer Surplus
Tax Revenue
Consumer Surplus
(?)
Producer Surplus
Deadweight Loss
(?)
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