Tax on Consumers

Example

The government taxes banana consumers $4 per banana.

The inverse demand is `P = 14 - Q_D`.

The inverse supply is `P = 2 + Q_S`.

With a $4 tax there are 4 million bananas on the market.

Consumers pay $10 per banana.

Producers get $6 per banana.

Consumer surplus is `CS = \frac{\left( 14 - 10 \right) \times 4}{2} = 8`.

Producer surplus is `PS = \frac{\left( 6 - 2 \right) \times 4}{2} = 8`.

The Government Revenue is `G = 4 \times 4 = 16`.

Total Surplus is equal to `TS = CS + PS +G = 8 + 8 + 16 = 32`.

The Dead weight loss is equal to `DWL = \frac{\left( 10 - 6 \right) \times \left( 6 - 4 \right)}{2} = 4`.

Question