Question

Total surplus with a tax is equal to a. consumer surplus minus producer surplus. b. consumer surplus plus producer surplus plus tax revenue. c. consumer surplus plus producer surplus minus tax revenue. d. consumer surplus plus producer surplus.

Answer 1

Answer:

Option (b) is correct.

Explanation:

The total surplus is defined as the sum total of producer surplus and consumers surplus. Total surplus with a tax is defined as the combined total of producers and consumers surplus and tax revenue that is earned by the government of a particular nation.

Consumers surplus = Willingness to pay for the product - Actual amount paid for the product

Producers surplus = Actual amount received for the product - Willingness to accept for the product