5 Calculate the before and after consumer surplus CS produce

5. Calculate the before and after consumer surplus (CS), producer surplus (PS), tax revenue, deadweight loss in the taxation diagram below where the demand intercept 37.00, and the supply intercept 3.00. Demand Supply 28.00 20.00- 12.00 QUANTITY (Pinckneys)

Solution

Before tax

CS = Area of A + B + C = 0.5*(37 - 20)*4 = 34
PS = Area of D + E + F = 0.5*(20 - 3)*4 = 34
Tax revenue = 0
DWL = 0

After tax

CS = Area of A = 0.5*(37 - 28)*2 = 9
PS = Area of F = 0.5*(12 - 3)*2 = 9
Tax revenue = B + D = (28 - 12)*2 = 32
DWL = C + E = 0.5*(28 - 12)*(4 - 2) = 16