2. Taxes and welfare Consider the market for air conditioning units. The following graph shows the demand and supply for air conditioning units before the government imposes any taxes. First, use the black point (plus symbol) to indicate the equilibrium price and quantity of air conditioning units in the absence of a tax. Then use the green point (triangle symbol) to shade the area representing total consumer surplus (CS) at the equilibrium price. Next, use the purple point (diamond symbol) to shade the area representing total producer surplus (PS) at the equilibrium price PRICE (Dollars per air conditioner) 210 REZER Demand Supply Before Tax QUANTITY (Air conditioners) + Equilibrium A Consumer Surplus Producer Surplus Suppose the government imposes an excise tax on air conditioning units. The black line on the following graph shows the tax wedge created by a tax of $120 per air conditioner. First, use the tan quadrilateral (dash symbols) to shade the area representing tax revenue. Next, use the green point (triangle symbol) to shade the area representing total consumer surplus after the tax. Then, use the purple point (diamond symbol) to shade the area representing total producer surplus after the tax. Finally, use the black point (plus symbol) to shade the area representing deadweight loss. PRICE (Dollars per air conditioner) 300 270 Demand 240 210 10 Tax Wedge Supply After Tax QUANTITY (Air conditioners) Tax Revenue A Consumer Surplus Producer Surplus Deadweight Loss PRICE (Dollars per air conditioner) Demand 240 210 180 Tax Wedge 150 120 90 8 30+ 0 Supply 140 200 420 560 700 840 900 1120 1200 1400 QUANTITY (Air conditioners) Tax Revenue Consumer Surplus Producer Surplus Deadweight Loss Complete the following table by using the previous graphs to determine the values of consumer and producer surplus before the tax, and consumer surplus, producer surplus, tax revenue, and deadweight loss after the tax Note: You can determine the areas of different portions of the graph by selecting the relevant area. Before Tax (Dollars) After Tax (Dollars) Consumer Surplus Producer Surplus Tax Revenue Deadweight Loss 0