If a tax has caused the market-clearing quantity to fall to Q 2 , what is total economic surplus?

Alright. If a tax has caused the market clearing quantity to fall to q2, what is total economic surplus? So again, here we have a tax and we are at q2, right? We're at this lower quantity because of the tax, we're not at the equilibrium quantity of q quantity of q one. So it's asking us what is total economic surplus in this case? So if you remember, when there's a tax, there's gonna be 3 things that are economic surplus. We're gonna have our consumer surplus, our producer surplus, as well as the tax revenue is still part of surplus. We didn't lose that like a deadweight loss, it's still part of the surplus. So let's go ahead and figure that out. So our consumer surplus is going to be that amount above the line, right? Above the price that consumers pay, but below the demand curve. So that's going to be that area A. And what about the producer surplus? That's going to be the amount below the price that the producers pay or producers receive, right? And that's going to be this area F. But remember, our economic surplus also includes the tax revenue and the tax revenue is the amount of the tax, which is this amount between the prices, right? Between what the the consumer pays and the seller receives, that's the amount of the tax and the quantity exchanged, right? So we're going to see this yellow area, that is going to be our tax revenue, right? So the sum of all of these is going to be our total economic surplus, so the area of C plus E, those areas are our deadweight loss, right? Everything else is our economic surplus. A plus B plus D plus F and that's gonna be C, right? The answer is C, area of A, B, D and F, Alright. So that's the answer there. Let's go ahead and move on.

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1. Introduction to Macroeconomics1h 57m
2. Introductory Economic Models59m
3. Supply and Demand3h 43m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
6. Introduction to Taxes1h 25m
7. Externalities1h 3m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. Introducing Economic Concepts49m
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
12. Unemployment and Inflation1h 15m
13. Productivity and Economic Growth1h 17m
14. The Financial System1h 37m
15. Income and Consumption52m
16. Deriving the Aggregate Expenditures Model1h 22m
17. Aggregate Demand and Aggregate Supply Analysis1h 18m
18. The Monetary System1h 1m
19. Monetary Policy1h 32m
20. Fiscal Policy1h 0m
21. Revisiting Inflation, Unemployment, and Policy46m
22. Balance of Payments30m
23. Exchange Rates1h 16m
24. Macroeconomic Schools of Thought40m
25. Dynamic AD/AS Model35m
26. Special Topics11m

6. Introduction to Taxes

Effects of Taxes on a Market

Macroeconomics

6. Introduction to Taxes

Effects of Taxes on a Market

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Multiple Choice

If a tax has caused the market-clearing quantity to fall to Q₂, what is total economic surplus?

The area of (A) and (F)

The area of (D), (E), and (F)

The area of (A), (B), (D), and (F)

The area of (A), (B), (C), (D), (E), and (F)

The area of (C) and (E)

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Verified step by step guidance

Identify the initial market equilibrium without tax, which is at quantity Q1 and price P*. This is where the supply and demand curves intersect.

Understand that the imposition of a tax shifts the supply curve upwards by the amount of the tax, leading to a new equilibrium at quantity Q2, with buyers paying price PB and sellers receiving price PS.

Recognize that the total economic surplus in a market is the sum of consumer surplus and producer surplus. Consumer surplus is the area above the price level and below the demand curve, while producer surplus is the area below the price level and above the supply curve.

With the tax in place, the consumer surplus is reduced to the area above PB and below the demand curve, which is area A. The producer surplus is reduced to the area below PS and above the supply curve, which is area F.

The total economic surplus after the tax is the sum of the consumer surplus and producer surplus at the new quantity Q2, which includes areas A, B, D, and F. This is because areas B and D are part of the surplus that remains after the tax, representing the portions of consumer and producer surplus that are not lost to the tax wedge.