TutorOn by Sanath Withanage

Question:

[Diagram context: Specific tax shifting S1 to S2]. Which areas measure tax revenue, new producer surplus, and deadweight loss?

Correct Answer:

(4)

Answer Explanation:

When a specific tax shifts the supply curve upward, the new equilibrium price is higher, and quantity falls. Tax Revenue is the rectangular area between the new price paid and the net price received by the seller. New Producer Surplus is the triangle below the net price and above the original supply curve. Deadweight Loss is the welfare triangle lost due to the reduced quantity traded.

Topic: Taxation Year: 2024