Question

The number of seats in a football stadium is fixed at 70,000. The city decides to impose a tax of $10 per ticket. In response, the team management raises the ticket price from $30 to $40 and still sells all 70,000 tickets. The tax caused a change in the consumer surplus of _____, a change in the producer surplus of _____, and a deadweight loss of _____.


(A) -$10; $0; $0

(B) -$700,000; $0; $0

(C) -$10; $0; $10

(D) -$700,000; $0; $700,000

Answer 1

Answer: The correct answer is "(B) -$700,000; $0; $0".

Explanation: The tax caused a change in the consumer surplus of $-700000, a change in the producer surplus of $0, and a deadweight loss of $0.

The change in consumer surplus is due to the $ 10 increase lost by consumers (10 x 70000 = 70000).

The rest does not vary because management decided to raise the price of the product, instead of bearing the tax.