The following graph depicts a market where a tax has been imposed. Pe was the eq

Question

The following graph depicts a market where a tax has been imposed. Pe was the equilibrium price before the tax was imposed, and Qe was the equilibrium quantity. After the tax, PC is the price that consumers pay, and PS is the price that producers receive. QT units are sold after the tax is imposed. NOTE: The areas B and C are rectangles that are divided by the supply curve ST. Include both sections of those rectangles when choosing your answers.

A. PC - Pe

B. Pe - PS

C. Pe + PS

D. PC + PS

E. PC - PS

Explanation / Answer

Ans. This is a very simple and Straightforward question , Let's Answer it :

The amount of Tax as measured along the Y axis is

E ) PC - PS

When Tax is imposed , Price increases from Pe to Pc , Thus Pc - Pe is the Tax Burden on the Producer . Now , Producer would share the tax burden with the Consumer too , Thus Pe - Ps would be Tax Burden on Consumer.

Now , the Total Tax Burden Would be Simple , ie adding the Tax Burden of Consumer and Producer

(Pc - Pe) + (Pe - Ps ) = Pc - Ps , Which is the Correct Answer.

I hope you understood the answer. Do ask in case of Doubts.

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Best of Luck !! Keep Chegging !!

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