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kodGreya [7K]
3 years ago
12

Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. Supp

ose the government levies a tax of $3 on each cigar, and the equilibrium price of a cigar increases to $18. How much consumer surplus will be lost because of the imposition of the tax relative to the consumer surplus when there is no tax?
Business
1 answer:
Lerok [7]3 years ago
3 0

Answer:

without tax:  $ 7 consumer surplus

with      tax:  $ 2 consumer surplus

differece: decrease of $5

Explanation:

the consumer surplus is the difference between the amount willing to pay for the good and the equilibrium price:

with no tax:

ken is willing to buy for 20 - 15 equilibrium price =  5

mark is willing to buy for 17 - 15 equilibrium price = 2

total 7

with taxes:

ken is willing to buy for 20 - 18 equilibrium price =  2

mark has no consumer surplus

total 2

difference: 5

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