The government places a tax on the purchase of socks.

a Illustrate the effect of this tax on equilibrium price and quantity in the sock market. Identify the following areas both before and after the imposition of the tax: total spending by consumers, total revenue 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.