210 PRICE (Dollars per handbag). 180 Tax Wedge 150 120 90 00 60 60 30 Supply 0 0 20 40 60 80 100 120 140 160 180 200 QUANTITY (Handbags) A Consumer Surplus Producer Surplus Deadweight Loss Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax. Note: You can determine the areas of different portions of the graph by selecting the relevant area. Before Tax (Dollars) After Tax (Dollars) Consumer Surplus Producer Surplus Tax Revenue 0 Deadweight Loss 0 Consider the market for designer handbags. The following graph shows the demand and supply for designer handbags before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of designer handbags in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price. ? PRICE (Dollars per handbag) 300 270 Demand 240 210 180 150 120 90 Supply 60 30 0 Before Tax Equilibrium A Consumer Surplus Producer Surplus Cancer Create

9. Effect of a tax on buyers and sellers The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle. Suppose the government institutes a tax of $40.60 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then, enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 200 PRICE (Dollars per bottle) 160 Supply 140 120 100 14 80 Demand 60 40 20 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Bottles of wine) 180 0 Before Tax After Tax Graph Input Tool…

The figure below shows a market of good C. Suppose that the government levied a tax on C. Suppose that the consumers’ tax incidence is 15 and the price sellers receive is 8 when the size of the tax is T. Answer the value of T. Hint: Remember the relationship between the tax incidences and the size of tax.

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