Environmental Economics
AEM 451/ECON 409
Solutions to Assignment #1
1.
a&b.
Q
P
MWTP
MC1
MC2
Q1
Q2
P2
P1
Perunit
tax
Original Situation (MC
1
, with equilibrium price and quantity equal to p
1
and q
1
):
Consumer Surplus: a+b+c+d
(The area between the MWTP and P
1
)
Producer Surplus: e+f+g
(The area between P
1
and the MC
1
curve)
There is no government revenue before the tax, so total surplus is CS+PS=
a+b+c+d+e+f+g
After the tax (MC
2
, with equilibrium price and quantity equal to p
2
and q
2
):
Consumer Surplus: a
Producer Surplus: b+e
Government Revenue: c+f
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View Full Document(The area between MC
2
and MC
1
, up to q
2
)
(Alternately, you can draw the government revenue as a box from 0 to q
2
on the Q axis,
and P
2
to where q
2
intersects MC
1
on the P axis, but that makes the calculations a little
harder for this problem.
See Figure 2)
The deadweight loss is the loss in total surplus from the tax.
Original Situation
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 Spring '08
 SHAWHAN,D.
 Supply And Demand, economic surplus, GR TS DWL, PS GR TS, CS PS GR

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