Let's consider the effects of excise taxes on consumer and producer surplus. We learned in the Surplus section that Consumers' Surplus is the area under the demand curve above the market price. To the right we show this as the green shaded area labeled CS. Producers' Surplus is the area above the supply curve below the market price and is show to the right as the yellow shaded area labeled PS.

    What effect does an excise tax have on surplus in this market?

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