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Safari File Edit View History Bookmarks Window Help @) 98% E. Wed Jun 22 9:59 PM Jocelyn Mccoy Q E courses.aplia.com (3 unread) - jocely - Yahoo Mail CengageBrain - Login or Register Aplia: Student Question Chegg Study | Guided Solutions and... www.ase.tufts.edu/gdae/publications.T Consider the market for tractor trailers. The following graph shows the demand and supply for tractor trailers before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of tractor trailers in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price Before Tax 150 135 120 105 Equilibriunm Deman Consumer Surplus 5 75 60 45 1 Producer Surplus Supply 30 15 0 4 812 16 20 2428 32 36 40 QUANTITY (Thousands of trailers) Session Timeout 41:48 INExplanation / Answer
Before tax price paid by consumer and producer is same at $75000 and the quantity is also same at 24000 units. After tax, the price paid by consumers is $90,000 and received by sellers is $60,000. So that the quantity is reduced to 12000 units
Before tax
Producer surplus is the area of the triangular region formed between price line and supply curve. The vertical intercept of supply curve is $45000 and so the area is = 1/2*base*height = 1/2*(75000 - 45000)*24,000 or $360 million
Consumer surplus is the area of the triangular region formed between price line and demand curve. The vertical intercept of demand curve is $105000 and so the area is = 1/2*base*height = 1/2*(105000 - 75000)*24,000 or $360 million.
After tax
Again the producer surplus is the area of the triangular region formed between price line and supply curve. The vertical intercept of supply curve is still $45000 but the price received by them falls to $60,000 and so the area is = 1/2*base*height = 1/2*(60,000 - 45,000)*12,000 or $90 million
Consumer surplus is the area of the triangular region formed between price line and demand curve. The vertical intercept of demand curve is still $105000 but the price paid by them rises to $90,000 and so the area is = 1/2*base*height = 1/2*(105,000 - 90,000)*12,000 or $90 million
Tax revenue collected amounts to $30,000* 12000 or 360 million
Deadweight loss created is the area of inefficiency that lies to the left of competitive equilibrium. This is equal to
= 1/2*(24000 - 12000)*30,000 = 180 million
Summarized answer is given below
Before Tax
After Tax
(Dollars)
(Dollars)
Consumer Surplus
360,000,000
90,000,000
Producer Surplus
360,000,000
90,000,000
Tax Revenue
0
360,000,000
Deadweight Loss
0
180,000,000
Before Tax
After Tax
(Dollars)
(Dollars)
Consumer Surplus
360,000,000
90,000,000
Producer Surplus
360,000,000
90,000,000
Tax Revenue
0
360,000,000
Deadweight Loss
0
180,000,000
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