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

Question

The following graph depicts a market where a tax has been imposed. P, 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. Qr 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 ved What is the total amount of producer and consumer surplus (ie. social welfare) in this market before the tax is imposed? A) A+B+C+E+F+G B) A+B+C+E C) F+ G D) A + C 9 Saved

Explanation / Answer

a) Before the tax was imposed the consumer and producer surplus was A+B+C+D+E+F+G. The answer "A".

b) "Inelastic"

When the demand is price inelastic the quantity sold doesn't change much even if the price is high or low.

c) "A"

As the change is the goods demanded is more than the fall in the income it is a luxury good.  

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