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The following diagram shows the market for cherries. Price (dollars per pound of cherries) 2.50 - I. S 2.00- 1.50 1.00 0.50 0 200 400
The following diagram shows the market for cherries. Price (dollars per pound of cherries) 2.50 - I. S 2.00- 1.50 1.00 0.50 0 200 400 600 800 Quantity (thousands of pounds of cherries) a Calculate the consumer surplus, producer surplus and total surplus at the equilibrium. (5 marks) b Suppose the government imposes a tax of $1 per pound on sellers of cherries. What are the new quantity transacted, price paid by buyers, price received by sellers, buyers' tax burden, sellers' tax burden, government tax revenue, and deadweight loss? (10 marks)
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