Question

Consider the market for luxury yachts depicted on the following graph. Determine the equilibrium price and quantity of luxury yachts in the absence of a tax. Using the green triangle (triangle symbols), shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple triangle (diamond symbols) to shade the area on the following graph representing total producer surplus (PS) at the equilibrium price. PRICE (Thousands of dollars per yacht! Supply 0 10 20 Demand 30 40 50 60 70 80 QUANTITY (Thousands of yachts) Help

Answer 1

Ans) When government imposes tax on sellers, supply curve shifts to the left by the amount of tax. This increases the price paid by buyers and reduces the price received by sellers.

Consider the market for luxury yachts depicted on the following graph. Determine the equilibrium price and quantity of luxury yachts in the absence of a tax. Using the green triangle (triangle symbols), shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple triangle (diamond symbols) to shade the area on the following graph representing total producer surplus (PS) at the equilibrium price. PRICE (Thousands of dollars per yacht! Supply 0 10 20 30 40 QUANY Demand 50 60 70 80 (Thousands of yachts) Help

Suppose the government imposes an excise tax on luxury yachts, collected from sellers. The following graph shows the new supply curve (Supplyt) after the imposition of a $150,000 per yacht tax. On the graph, use the green triangle (triangle symbols) to shade the area representing total consumer surplus after the tax. Use the purple triangle (diamond symbols) to shade the area representing total producer surplus after the tax. Then use the red quadrilateral (cross symbols) to shade the area representing tax revenue, and use the tan triangle (rectangle symbols) to shade the area representing deadweight loss. PRICE (Thousands of dollars per yacht) 400 Supply Supply x Revenue Deadweight Loss 0 10 Demand 30 40 50 60 70 80 QUANTITY (Thousands of yachts) Help Clear All

Mouse over the areas you plotted on the previous graphs to determine the values for consumer and producer surplus before the tax and for producer surplus, consumer surplus, tax revenue, and deadweight loss after the tax. Use these values to fill in the following table: Before Tax ($) Consumer Surplus 4,000,000,000 Producer Surplus 2,obro 0100 000 Government Tax Revenue Deadweight Loss After Tax ($) 1.000.000.000 5010.000000 3,000,000,000 1,500,000,000