In: Economics
If the government decides to impose a tax of 20 cents per liter on petrol, illustrate the impact of the tax on market equilibrium price, and discuss whether the outcome is efficient by demonstrating the change of consumer’s and producer’s surplus as a result of tax . - Draw a demand and supply model with demand curve - Show the shift of S as a result of 20 cent tax. - Mark the price paid by consumer and received by the seller. - demonstrate change of consumer and producer’s surplus, tax revenue, and deadweight loss
Price paid by consumer = Pc
Price received by seller = Ps
Consumer surplus before tax = ABC
Consumer surplus after tax = AEF
Change in consumer surplus = EFBC
Producer surplus before tax = BCD
Product surplus after tax = GHD
Change in producer surplus = BCHG
Tax revenue = EFHG
Dead weight loss = FCH