10. Once again consider the graph to the right. The imposition of the excise tax causes consumers' surplus to fall. By what dollar amount is consumers' surplus reduced due to this tax?
10. Once again consider the graph to the right. The imposition of the excise tax causes consumers' surplus to fall. By what dollar amount is consumers' surplus reduced due to this tax?
Consumers' surplus is the area above the price under the demand curve. When the tax caused the price to rise from $50 to $75 it reduced consumers' surplus. We've shaded the area that represents lost consumers' surplus in blue and green. The sum of these two areas is the lost consumers' surplus. The rectangular blue area is 65 x $25 = $1625, while the green triangle has an area of 25 x $25 x 0.5 = $312.50, so the total area of lost consumers' surplus is: $1625 + $312.50 = $1937.50.
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