Consider the market for used child's bikes. The following graph shows the demand and supply for used child's bikes before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of used child's 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. (?) PRICE (Dollars per used bike) 200 T 180 PRICE (Dollars per 160 140 120 100 80 60 40 20 0 200 180 160 140 120 100 Suppose the government imposes an excise tax on used child's bikes. The black line on the following graph shows the tax wedge created by a tax of $40 per used bike. 80 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. 60 40 0 20 Demand 0 50 100 Demand Tax Wedge Before Tax Supply Consumer Surplus Producer Surplus 150 200 250 300 350 400 450 500 QUANTITY (Used bikes) Tax Revenue Deadweight Loss 0 50 100 150 200 250 300 After Tax Supply 350 400 450 QUANTITY (Used bikes) 0 0 ++ Equilibrium A 500 Consumer Surplus Producer Surplus After Tax (Dollars) Tax Revenue A Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax and of 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 Deadweight Loss (?)
Consider the market for used child's bikes. The following graph shows the demand and supply for used child's bikes before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of used child's 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. (?) PRICE (Dollars per used bike) 200 T 180 PRICE (Dollars per 160 140 120 100 80 60 40 20 0 200 180 160 140 120 100 Suppose the government imposes an excise tax on used child's bikes. The black line on the following graph shows the tax wedge created by a tax of $40 per used bike. 80 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. 60 40 0 20 Demand 0 50 100 Demand Tax Wedge Before Tax Supply Consumer Surplus Producer Surplus 150 200 250 300 350 400 450 500 QUANTITY (Used bikes) Tax Revenue Deadweight Loss 0 50 100 150 200 250 300 After Tax Supply 350 400 450 QUANTITY (Used bikes) 0 0 ++ Equilibrium A 500 Consumer Surplus Producer Surplus After Tax (Dollars) Tax Revenue A Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax and of 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 Deadweight Loss (?)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider the market for used child's bikes. The following graph shows the demand and supply for used child's bikes before the government imposes
any taxes.
First, use the black point (plus symbol) to indicate the equilibrium price and quantity of used child's 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.
PRICE (Dollars per used
200
180
160
140
120
100
80
60
40
20
0
200
180
160
140
120
100
80
60
40
0
20
0
Demand
Suppose the government imposes an excise tax on used child's bikes. The black line on the following graph shows the tax wedge created by a tax of
$40 per used bike.
50
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.
0
100
Demand
Tax Wedge
Before Tax
Supply
150 200 250 300 350 400 450 500
QUANTITY (Used bikes)
Consumer Surplus
Producer Surplus
Tax Revenue
Deadweight Loss
After Tax
50 100 150 200 250 300 360
350 400 450 500
QUANTITY (Used bikes)
Supply
+
Equilibrium
A
0
0
Consumer Surplus
Producer Surplus
Tax Revenue
Consumer Surplus
(?)
Producer Surplus
Deadweight Loss
Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax and of 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)
After Tax
(Dollars)
(?)
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