With Quota case: We have a consumer surplus of 500 We have a producer surplus of 3000 With Tax: We have a consumer surplus of 500 We have a prodcuer surplus of 2000 Would the mayor be successful in increasing Total Surplus relative to the Quota case?

With Quota case: We have a consumer surplus of 500 We have a producer surplus of 3000 With Tax: We have a consumer surplus of 500 We have a prodcuer surplus of 2000 Would the mayor be successful in increasing Total Surplus relative to the Quota case?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Cost Of Taxation

Section: Chapter Questions

Problem 8PA

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Question

With Quota case:

We have a consumer surplus of 500

We have a producer surplus of 3000

With Tax:

We have a consumer surplus of 500

We have a prodcuer surplus of 2000

Would the mayor be successful in increasing Total Surplus relative to the Quota case?

Consumer’s gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price and up to the equilibrium quantity. Consumer surplus is represented by area A.

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