Question

In: Economics

Consider again the market for a type of equipment used by fans of crafting. As a...

Consider again the market for a type of equipment used by fans of crafting.

As a reminder, before the tax:

Vertical intercept, demand curve: 80
Vertical intercept, supply curve: 50
P* = $60
Q* = 40

And after:

The tax makes the price paid by buyers rise to $70 and the price received by sellers to fall to $55. With the tax, only 20 units are sold.

Calculate producer surplus AFTER the tax is applied. Carefully follow all numeric instructions.

Solutions

Expert Solution

After tax produced receives=$55

and quantity=20

and supply curve starts with price intercept=50

Thus producer surplus=area below the price line and above supply curve

it means it is the difference between the actual price and the minimum acceptable price.

Thus producer surplus=1/2*5**20=50

Rahul Sunny answered 2 years ago
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