Consider the market for mountain bikes. The following graph shows the demand and supply for mountain bikes before the government imposes anytaxes.First, use the black point (plus symbol) to indicate the equilibrium price and quantity of mountain bikes 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.Before Tax200180Equilibrium160Demand140120Consumer Surplus10080Producer SurplusSupply60402050100 150200250300350400450500QUANTITY (Bikes)Suppose the government imposes an excise tax on mountain bikes. The black line on the following graph shows the tax wedge created by a tax of $40per bike.PRICE (Dollars per bike) 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.After Tax200180Tax Revenue160Demand140120Consumer Surplus100Tax WedgeProducer SurplusSupply6040Deadweight Loss2050100150200250300350400450500QUANTITY (BIikes)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.Before TaxAfter Tax(Dollars)(Dollars)Consumer SurplusProducer SurplusTax RevenueDeadweight LossPRICE (Dollars per bike)

Before Tax:- Then; Consumer surplus=12×(140-100)×(300) =12×40×300…

Answered: Consider the market for mountain bikes.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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