Homework Answers
Question :
Answer :
Price before tax = P = $10
Quantity before tax = 500
Price paid by consumer after tax = Pt = $12
Quantity after tax = Q = 400
Price received by producer after tax = $8
Price Consumer willing to pay = Pw= $20
Consumer Surplus before tax = 
C.S = 1/2 * 500 * ($20 - $10) = $2500
Consumer surplus after tax = 
C.S = 1/2 * 400 * ($20 - $12) = $1600
Consumer surplus decreased from $2500 to $1600.
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