Answer to Question #270059 in Microeconomics for khashayar

Question

The following graph shows the equilibrium price and quantity in the market for chewing

gum. Suppose the government passes a bill to impose a tax of 2 dollars on the production

of chewing gum.

a) What is the new equilibrium price and quantity?

b) What is the amount of tax revenue earned by the government?

c) What is the deadweight loss of this tax?

d) Which is greater: the loss in consumer surplus or the loss in producer surplus?

Answer 1

a. P=5, Q=4

b. Tax Revue= 4*2=8

c. (4.67-4)*5

d. Loss in consumer surplus