Question

See A state tobacco sales tax causes the demand curve for a particular brand of cigars to shift from D1 to D2. The tax is assessed at the point of sale as a tax on buyers. Use the area tool to draw the three-cornered area representing the producer surplus after the tax. To refer to the graphing tutorial for this question type, please click here. 3.* Quantity (thousands per week

Answer 1

Producer surplus can be defined as the difference between the amount that the producer is willing to accept and the amount that the producer receives. Given that an increase in the tobacco sales tax caused shift in the demand curve for a particular brand of cigars from D/ to D2. Below graph shows the area of producer surplus: Price ($) 20 40 60 80 100 120 140 160 Quantity (Thousands per week) Calculate Producer Surplus: = }(35–15)(40-0) (20)(40) = $400