Module #6 - Consumer and Producer Surplus

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the

tax revenue increases at first, but it eventually peaks and then decreases.

The following table represents the costs of five possible sellers. Seller Cost Abby $1,600 Bobby $1,300 Dianne $1,100 Evaline $900 Carlos $800 Suppose each of the five sellers can supply at most one unit of the good. The market quantity supplied is exactly 2 if the price is

$1,050.

http://s1266.photobucket.com/user/bokurawauta/media/mank07t.48.056.1_zpsd9yuynsm.png.html At the equilibrium price, producer surplus is

$2,500.

http://s1266.photobucket.com/user/bokurawauta/media/mank07t.53.143.1_zpsss3dt53a.png.html The vertical distance between points A and B represents a tax in the market. Total surplus with the tax in place is

$4,500.

Producer surplus equals the

amount received by sellers minus the cost to sellers.

http://s1266.photobucket.com/user/bokurawauta/media/mank07t.42.080.1_zpslvvcflxo.png.html?filters[user]=145534191&filters[recent]=1&sort=1&o=0 Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

between $5 and $7

If the government levies a $5 tax per MP3 player on buyers of MP3 players, then the price paid by buyers of MP3 players would likely

increase by less than $5.

If the government removes a binding price ceiling from a market, then the price received by sellers will

increase, and the quantity sold in the market will increase.

If a price floor is not binding, then

there will be no effect on the market price or quantity sold.

At the equilibrium price of a good, the good will be sold by those sellers

whose cost is less than price.