Dept. Applied Economics - University of Minnesota Section B: Elasticities and the Effects of Taxes B.1: Consider the market depicted by the supply and demand diagram below. Suppose the government is to impose a tax of $3 per unit on either the producers or the consumers of the product. (1) What is the consumer surplus before the imposition of the tax? Answer: $ (2) What is the producer surplus before the imposition of the tax? Answer: $ (3) What is the consumer surplus after the imposition of the tax? Answer: $ (4) What is the producer surplus Price $13 $8.5 $7.0 $5.5 after the imposition of the tax? $1.0 Answer: $ 6 8 Quantity (5) What is the reduction in CS due to the taxation? Answer: $ (6) What is the reduction in PS due to the taxation? Answer: $ (7) What is the amount of government tax revenue? Answer: $ (8) What is the deadweight loss due to the taxation? Answer: $ (9) Of the total reduction in CS and PS, X dollars goes to the government and Y dollars is the deadweight loss. What are x and Y? Answer: X=9$ Answer:Y=$