Solution Found!
The government places a tax on the purchase of
Chapter , Problem 7(choose chapter or problem)
The government places a tax on the purchase of socks.a.Illustrate the effect of this tax on equilibrium price and quantity in the socks market. Identify the fol-lowing areas both before and after the imposition of the tax: total spending by consumers, total rev-enue for producers, and government tax revenue.b.Does the price received by producers rise or fall? Can you tell whether total receipts for producers rise or fall? Explain.c.Does the price paid by consumers rise or fall? Can you tell whether total spending by consumers rises or falls? Explain carefully. (Hint: Think about elasticity.) If total consumer spending falls, does consumer surplus rise? Explain
Questions & Answers
QUESTION:
The government places a tax on the purchase of socks.a.Illustrate the effect of this tax on equilibrium price and quantity in the socks market. Identify the fol-lowing areas both before and after the imposition of the tax: total spending by consumers, total rev-enue for producers, and government tax revenue.b.Does the price received by producers rise or fall? Can you tell whether total receipts for producers rise or fall? Explain.c.Does the price paid by consumers rise or fall? Can you tell whether total spending by consumers rises or falls? Explain carefully. (Hint: Think about elasticity.) If total consumer spending falls, does consumer surplus rise? Explain
ANSWER:Step 1 of 4
Consumer surplus refers to the price which the consumers are prepared to pay minus the price which the consumers actually pay to the producers or sellers in the marketplace. Whenever taxes get imposed that time, the consumer surplus gets reduced to a large extent, and accordingly, their total spending gets affected.