# D suppose february is more bitterly cold than usual

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d) Suppose February is more bitterly cold than usual, increasing demand for hot chocolate by 60 units at any given price. Supply remains as before. Given this information, what is the new equilibrium price and quantity?
e) What is the new consumer and producer surplus, CS' and PS'?
f) What are the new price elasticities of supply and demand using the point elasticity formula?
g) Suppose the city of Madison decides to tax hot chocolate with a \$3 per unit excise tax on suppliers. Calculate the equilibrium quantity (Qe t ), price (Pe t ), consumer surplus (CS t ), producer surplus (PS t government revenue (Govt. Tax Rev.), tax incidence on consumers (CTI), tax incidence on producers (PTI), and deadweight loss (DWL) from this tax for January (before the change in demand). ),
3 PS t = (1/2)*20*4 = \$40 The tax is \$3 per unit, and 20 units were bought, thus Government Revenue is Govt. Tax Rev. = 3*20 = \$60 Deadweight loss can be observed in the plot as the dark triangle in the middle. DWL = (1/2)*3*10 = \$15 We can see that the DWL is not government revenue, producer surplus or consumer surplus, so it is potential surplus that is lost due to the imposition of the excise tax. Again, from the plot, we can see that of the \$3 tax, consumers effectively pay \$1 per unit of the good consumed and producers pay \$2 per unit of the good produced and sold (the upper and lower vertical heights of the government revenue rectangle respectively). So total consumer tax incidence (CTI) is \$20, and producer tax incidence (PTI) is \$40.