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In: Economics

Given the following information, QD = 240-5P QS= P Where QD is the quantity demanded, Qs...

Given the following information, QD = 240-5P QS= P Where QD is the quantity demanded, Qs is the quantity supplied and P is the price. Suppose the government decides to impose a tax of $12 per unit on sellers in this market. Determine the total surplus after tax.

Solutions

Expert Solution

Total surplus after tax is the sum of consumer surplus, producer surplus and revenue of government

Before tax, we have QD = QS which gives P = 240/6 = 40 and Q = 40

After tax we have QD = QS + tax which gives P = 252/6 = 42 paid by buyers, P = 30 received by sellers and Q = 30

Total surplus after tax = CS + PS + Revenue

= 0.5*(48-42)*30 + 0.5*(30-0)*30 + 12*30

= 900

It is $900

Rahul Sunny answered 2 years ago
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