JNU SSS 2019 - Question 32 (Solution)

Andre walks Julia's dog once a day for $ \$50$ per week. Julia values this service at $ \$60$ per week, while the opportunity cost of Andre's time is $ \$30$ per week. The government places a tax of $ \$35$ per week on dog walkers. After the tax, what is the total surplus?
Given,
Market price (what Andre earns)$= \$50$ per week.
Julia's willingness to pay is $ \$60$ per week.
Andre's opportunity cost is $ \$30$ per week
Tax placed govt. equals $ \$35$ per week.

Pre-tax

$$Total \ Surplus= \ Producer \ surplus + Consumer \ surplus \\ = (50-30) + (60-50) \\ =20+10 \\ =30$$

Post-Tax

Once govt. places a tax of $ \$35$ the whole amount of total surplus is taken away (since $ \$35 >  \$30$). Thus total surplus is $0$.

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