2) Welfare Analysis: Excise Tax (10 points) Now suppose that the government decides to place an excise tax of $4 on widgets. The tax wedge is labeled on the graph. Supply and Demand for Widgets a. On the graph, label the new prices paid by consumers and received by sellers. Label the Price new quantity sold with the tax. $22 Buyers pay: $20 $18 Sellers receive: $16 Quantity sold: widgets $14 $12 b. Calculate the government revenue from the tax, and label the rectangle on the graph. $10 Copy your answer into the table below. $8 $6 $4 $2 c. Now conduct a welfare analysis of the excise tax. The values of Consumer, Producer, and 20 40 60 80 100 120 140 Total Surplus in equilibrium will be the same as Problem 1, so you can copy them over. Quantity Government revenue in equilibrium is zero. On the graph, label the areas representing consumer and producer surplus with the excise tax. Then, find and calculate the new values. In the "change" column, specify whether each value increased, decreased, or stayed the same once the excise tax was put in place. Equilibrium With Excise Tax Change Consumer Surplus Producer Surplus Government Revenue Total Surplus d. Summarize what happened to surplus when the excise tax was implemented. Who benefited, and who was hurt by the policy? - P: " LULJ j. Does the tax cause deadweight loss (DWL)? If so, label the area on the graph and find its value by calculating the change in total surplus (or finding the area of the triangle). e. What is the policy goal of an excise tax? Based on your analysis above, was that goal achieved with this policy? How do you know? f. With that in mind, briefly describe the tradeoff the government is weighing when it implements an excise tax. What are the benefits, and what are the downsides