Consider the market for mountain bikes. The following graph shows the demand and supply for mountain bikes before the government imposes any tаxes. 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 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. Before Tax 200 180 Equilibrium 160 Demand 140 120 Consumer Surplus 100 80 Supply Producer Surplus 60 40 20 50 100 150 200 250 300 350 400 450 500 QUANTITY (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 $40 per bike. PRICE (Dollars per bike)
Consider the market for mountain bikes. The following graph shows the demand and supply for mountain bikes before the government imposes any tаxes. 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 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. Before Tax 200 180 Equilibrium 160 Demand 140 120 Consumer Surplus 100 80 Supply Producer Surplus 60 40 20 50 100 150 200 250 300 350 400 450 500 QUANTITY (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 $40 per bike. PRICE (Dollars per bike)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the market for mountain bikes. The following graph shows the demand and supply for mountain bikes before the government imposes any taxes.
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 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.
The graph titled "Before Tax" displays:
- A demand curve (blue line) sloping downward.
- A supply curve (orange line) sloping upward.
- The Y-axis represents price in dollars per bike (ranging from $0 to $200).
- The X-axis represents the quantity of bikes (ranging from 0 to 500).
The key to the right of the graph includes symbols for:
- Equilibrium (black plus)
- Consumer Surplus (green triangle)
- Producer Surplus (purple diamond)
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 $40 per bike.
Transcribed Image Text: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.
### Graph Explanation:
- **Graph:** "After Tax"
- **Axes:**
- Y-axis: Price (Dollars per bike) ranging from 0 to 200.
- X-axis: Quantity (Bikes) ranging from 0 to 500.
- **Lines:**
- **Demand Curve:** Sloping downwards.
- **Supply Curve:** Sloping upwards.
- **Tax Wedge:** Vertical line between supply and demand curves.
### Legend:
- **Tax Revenue:** Tan quadrilateral represented by dash symbols.
- **Consumer Surplus:** Green area represented by triangle symbols.
- **Producer Surplus:** Purple area represented by diamond symbols.
- **Deadweight Loss:** Black area represented by plus symbols.
### Table Completion Task:
Complete the table using the graph to find values for consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax.
#### Table:
| | Before Tax (Dollars) | After Tax (Dollars) |
|---------------------------------|----------------------|---------------------|
| Consumer Surplus | | |
| Producer Surplus | | |
| Tax Revenue | 0 | |
| Deadweight Loss | 0 | |
**Note:** Determine the areas of different portions of the graph by selecting the relevant area.
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