The following graph illustrates the market for balloons. Th…
Questions
The fоllоwing grаph illustrаtes the mаrket fоr balloons. This graph illustrates the market for balloons, with price on the vertical axis ranging from $2 to $8 and quantity on the horizontal axis. It includes a downward-sloping demand curve labeled D, and two upward-sloping supply curves: the original supply curve labeled S, and a second curve labeled S plus Tax representing the effect of a tax. Dashed lines indicate an initial equilibrium price of $5 with a quantity of 90 balloons, and a new equilibrium after the tax at a price of $6 with a quantity of 60 balloons. Horizontal and vertical dashed lines connect these points to the axes, showing how the tax shifts the supply curve upward and reduces the equilibrium quantity in the balloon market. Use the graph to answer questions a-f. Calculate the area of consumer surplus before the tax. Show your work. (3 points) What is the value of the tax in the graph below? How do you know? (3 points) What is the after tax price the sellers keep? (2 points) Calculate the total tax revenue. Show your work. (2 points) Calculate consumer surplus after the tax. Show your work. (2 points) Between the prices of $5 and $6, is demand relatively elastic, relatively inelastic, unit elastic, perfectly inelastic, or perfectly elastic? Explain your answer. (3 points)
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