The deadweight loss of tax on a commodity.
Answer to Problem 1CQQ
Option 'a' is correct.
Explanation of Solution
The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.
When a tax is imposed on the commodity, it will lead to an increase in the
Option (a):
The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the
Option (b):
When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.
Option (c):
The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.
Option (d):
The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.
Concept introduction:
Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.
Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.
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Chapter 8 Solutions
Principles of Microeconomics (MindTap Course List)
- . Draw a diagram to show the effect of a tax on producers. Show one demand curve and two supply curves (one before and one after the tax). Show the old and new prices and quantities. Use shading to show who gets the different parts of the surplus and indicate if there is any deadweight loss. Comment on implications for tax policy.arrow_forwardQuestion 5arrow_forwardHelp please 33arrow_forward
- Question 5: Consumer and Producer surplus Consumer and Producer surplus Stax P $500 S $200 $120 $X $50 80 150 Q Assume an excise tax of $130 per-unit tax has resulted in a decrease in Supply as shown on the graph above. Show all your work. a. How much is the value of X (intercept of the_green line). How do you describe what that value is? b. How much is the consumer surplus before the tax? c. How much is producer surplus before the tax? d. How much is the consumer surplus after the tax? e. How much is producer surplus after the tax? f. How much tax revenue was raised by the government as a result of this taxation g. How much is the deadweight loss as a result of the taxarrow_forwardSuppose the following graph depicts the supply and demand for a good after a tax is imposed. How much surplus is lost because of the tax? Price None Pi P₁ An amount equal to the tax. 9 Demand Curve Tax Supply Curve plus tax Supply Curve Quantity both producers and consumer lose all surplus. Othere is no way to tell since the demand curve is odd looking.arrow_forwardOnly typed answer and please don't use chatgptarrow_forward
- Help plz 3 6arrow_forwardSuppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. a. Draw a supply and demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by produers? b.Draw a supply and demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? C. Can you identify and government revenues? d. Is there and inefficiency, and if so, can you define it and label it on the graph? e. If the producer has an inelastic supply curve, which market participant has the bigger tax brden? Explain.arrow_forwardNeed e and f answeredarrow_forward
- When a tax is placed on the sellers of cell phones, the size of the cell phone market a. and the effective price received by sellers both increase. b. increases, but the effective price received by sellers decreases. C. decreases, but the effective price received by sellers increases. d. and the effective price received by sellers both decrease.arrow_forwardConsumer and Producer surplus Stax P $100 $70 $50 $45 $X $5 D 40 60 Assume an excise tax that has caused a decrease in Supply as shown on the graph above Show all work. а. How much is the tax per- unit b. How much is the value of X (intercept of the green line). How do you describe what that value is? C. How much is the consumer surplus before the tax? d. How much is producer surplus before the tax? е. How much is the consumer surplus after the tax? f. How much is producer surplus after the tax? g. How much is the deadweight loss as a result of the taxarrow_forward(e) (i) Calculate the consumer surplus after the tax. Suppose that the government imposes a tax on cigarettes. Use the diagram below to answer the questions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curve after the tax. Answer: Answer Price S- 18 Question 18 12 10 (e) (ii) Calculate the producer surplus after the tax. Answer: 10 12 Qua Answer Question 19 (e) (ii) Tax revenue. Answer: Question 20 Price received by producers (e) (iv) Deadweight loss Quantity of cigarettes sold Answer: Price paid by consumers Answer the tax Question 21 (e) (v) Total surplus after tax Answer: S PhotoGridarrow_forward
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