Principles of Microecon eChegg Study 1 Guided ek 3 Mon Ane 1

Principles of Microecon eChegg Study 1 Guided ek 3: Mon Ane 11 . 18300 57% dence:Homework 06/15/18 Acity imposes a mandatory\"suild fee\' on sales of handcrafted goods. This tax causes the supply curve for handmade mailboxes to shift from $1 to S2.The fee ls in effect a tax paid by sellers, as a fosed amount on each mailbox sold Use the area tool to drawthe area representing the consumer surplus after the tax Your answer should be a triangle with three corners To refer to the graphing tutorial for this question type, please dick here e 46

Solution

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Answer-

The city imposes guild fees/tax on sale of handicraft goods. Because of the tax the supply curve shifts from S1 to S2.

The shift in supply curve explains that there has been fall in the demand for the product as the supply has fallen down to S2. We need to identify the range of price, which has increased due to the increase in the value of tax.

The logic is very simple here the tax will increase the price of the product and hence creates a surplus for the customer.

To identify the points on the graph here we take point 1 which is at first point of intersection of supply curve and demand cure that is point S1 where the demand curve intersects and the other point is where the S2 intersects the demand curve. The logic of considering these two points is that this will give us the change in the demand due to the change in supply of the product.

The last point is the top point on the S2. This will form a triangle shape representing the consumer surplus. The point 3 is considered due to the fact to acknowledge the highest point on S2, which will give us the maximum supply for the product after the surplus.