On the graph to the right we show the effect of the imposition of an excise tax of $4 per unit on surplus. After the tax, Consumers' Surplus is that area under the demand curve above the higher $6.00 price. Producers' Surplus is the area above the supply curve below the new lower producers' price of $2.00.
As a result of the tax, Consumers' Surplus is reduced by $75, while Producers' Surplus is reduced by$125 due to the tax. Total surplus lost due to the tax is $200. What happens to this surplus?
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