Explanation 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 include the income tax, wealth tax and the professional tax. When there is a tax, it will lead to fall in the consumer surplus as well as in the producer surplus . As a result, the total surplus which is the summation of the consumer surplus and the producer surplus will fall and this fall will occur in the total surplus due to taxation which is known as the deadweight loss due to tax. The equilibrium price is determined by the demand for the coat and the supply of coat normally. The consumer surplus can be explained as the difference between the highest price that the consumer is willing to pay and the actual price that the consumer pays. The difference between these two prices is known as the surplus to the consumer. The producer surplus is the difference between the minimum willing to accept price by the seller and the actual price that the seller receives for the commodity. When there is no subsidy in the economy, the economy will be in its equilibrium which will be determined at the intersection of the demand curve and the supply curve in the economy. Thus, the equilibrium price will be P1 and the equilibrium quantity will be Q1. When the subsidy is introduced in the economy, consumer pays less than the equilibrium price and the producer receives more than the equilibrium price because they receive the subsidy of $2 for every commodity sold...

Bundle: Principles Of Economics, Loose-leaf Version, 8th + Lms Integrated Mindtap Economics, 1 Term (6 Months) Printed Access Card

8th Edition

ISBN: 9781337607650

Author: N. Gregory Mankiw

Publisher: Cengage Learning

See similar textbooks

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 8, Problem 8PA

To determine

The impact of subsidy on the commodity.

Expert Solution & Answer

Chapter 8 Solutions

Bundle: Principles Of Economics, Loose-leaf Version, 8th + Lms Integrated Mindtap Economics, 1 Term (6 Months) Printed Access Card

Ch. 8.1 - Prob. 1QQ Ch. 8.2 - The demand for beer is more elastic than the...Ch. 8.3 - Prob. 3QQ Ch. 8 - Prob. 1CQQ Ch. 8 - Prob. 2CQQ Ch. 8 - Prob. 3CQQ Ch. 8 - Prob. 4CQQ Ch. 8 - Prob. 5CQQ Ch. 8 - Prob. 6CQQ Ch. 8 - Prob. 1QR

Ch. 8 - Prob. 2QR Ch. 8 - Prob. 3QR Ch. 8 - Why do experts disagree about whether labor taxes...Ch. 8 - What happens to the deadweight loss and tax...Ch. 8 - Prob. 1PA Ch. 8 - Prob. 2PA Ch. 8 - Prob. 3PA Ch. 8 - Prob. 4PA Ch. 8 - Prob. 5PA Ch. 8 - Prob. 6PA Ch. 8 - Prob. 7PA Ch. 8 - Prob. 8PA Ch. 8 - Prob. 9PA Ch. 8 - Prob. 10PA

The impact of subsidy on the commodity.

Solution Summary: The author explains the impact of subsidy on the commodity. Tax is the main source of income of the government.

The impact of subsidy on the commodity.

Chapter 8 Solutions