Demonstrate Graphically and Explain Verbally the Cost to Consumers of a Tax

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The Answer is Imposing a tax will result in an upward shift of the supply curve, a decrease in supply (S₀ to S₁ in the diagram). The cost to the consumers is a loss of consumer surplus of areas B + C. (Before tax consumer surplus is A + B + C whereas after tax consumer surplus is A.) The area B goes to the government. Area C is a deadweight loss. Imposing a tax will result in an upward shift of the supply curve, a decrease in supply (S<sub>0</sub> to S<sub>1</sub> in the diagram). The cost to the consumers is a loss of consumer surplus of areas B + C. (Before tax consumer surplus is A + B + C whereas after tax consumer surplus is A.) The area B goes to the government. Area C is a deadweight loss.

Imposing a tax will result in an upward shift of the supply curve, a decrease in supply (S<sub>0</sub> to S<sub>1</sub> in the diagram). The cost to the consumers is a loss of consumer surplus of areas B + C. (Before tax consumer surplus is A + B + C whereas after tax consumer surplus is A.) The area B goes to the government. Area C is a deadweight loss.

Demonstrate Graphically and Explain Verbally the Cost to Consumers of a Tax

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Demonstrate Graphically and Explain Verbally the Cost to Consumers of a Tax

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Correct Answer:
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