Asked by Faiza Bashir on Jul 12, 2024
Verified
Refer to Figure 8-3. Which of the following statements is correct?
A) Total surplus before the tax is imposed is $500.
B) After the tax is imposed, consumer surplus is 45 percent of its pre-tax value.
C) After the tax is imposed, producer surplus is 45 percent of its pre-tax value.
D) Total surplus after the tax is imposed is $500.
Total Surplus
The sum of consumer and producer surplus, reflecting the total benefit to society from the production and consumption of goods and services.
Consumer Surplus
The split between the maximum total consumers are prepared to pay for a product or service and the actual payment.
Producer Surplus
The gap between the minimum amount producers are willing to accept for providing a good or service and the actual amount they end up receiving.
- Investigate the effects of taxation on consumer surplus, producer surplus, and the total economic surplus.
- Grasp the concept of economic welfare and how it is affected by taxation.
Verified Answer
JZ
Javeria ZahidJul 18, 2024
Final Answer :
A
Explanation :
Without access to Figure 8-3, the correct answer cannot be determined based on visual data or specific numbers provided in the figure. However, based on the typical analysis of tax impacts in economics, total surplus before a tax is imposed is generally higher than after a tax is imposed due to the creation of deadweight loss. Therefore, statements B, C, and D, which imply specific outcomes after a tax is imposed, cannot be verified without the figure. Statement A about the total surplus before the tax could be considered correct in a hypothetical scenario, but without the figure, this is speculative.
Learning Objectives
- Investigate the effects of taxation on consumer surplus, producer surplus, and the total economic surplus.
- Grasp the concept of economic welfare and how it is affected by taxation.