Figure 8-1Refer to Figure 8-1.Suppose the government imposes a tax of P'–P'''. Total surplus before the tax is measured by the area

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Question restatement: The problem references Figure 8-1 and asks: “Suppose the government imposes a tax of P'–P'''. Total surplus before the tax is measured by the area …” The provided data shows a single answer choice string: “c. I + J + K + L + M + Y.” However, the answer options array is empty, so we do not have the full list of possible regions to compare against.

Key concept to apply: Total surplus before tax (also called social or total welfare) in a standard supply-demand diagram is the sum of consumer surplus and producer surplus for the pre-tax equilibrium quantity. In a typical graph, consumer surplus is the area under the demand curve and above the market price up to the quanta traded, while producer surplus is the area above the supply (marginal cost) curve and below the market price up to that same quantity. When a tax is imposed, the pre-tax total surplus would be evaluated at the pre-tax equilibrium quantity, not including tax revenue or deadweight loss created by the tax itself.

Option analysis given the partial information (assuming c corresponds to I + J + K + L + M + Y):
- Correct interpretation (general idea): If option c lists the regions that together comprise the pre-tax consumer surplus plus the pre-tax producer surplus, then these regions would collectively summarize the total surplus prior to any tax effect. In standard diagrams, this means the combined area under the demand curve above the pre-tax price plus the area above the supply curve below the pre-tax price, extending to the pre-tax quantity. If the letters I, J, K, L, M, and Y are exactly the regions that cover both the consumer and producer surplus in the pre-tax equilibrium, then this option would align with the concept of total surplus before tax.
- Why this could be correct: The total surplus before tax should exclude tax revenue and any changes caused by the tax itself. It is the welfare that would exist without the tax, i.e., the sum of the buyer’s willingness to pay above price and the seller’s cost below price up to the pre-tax quantity. If those six regions collectively map to precisely CS + PS at the pre-tax equilibrium, they would correctly describe pre-tax total surplus.
- Why this could be incorrect if mis-mapped: If any of the listed regions extend beyond the pre-tax equilibrium quantity, or include areas affected by the tax (such as portions representing tax revenue or deadweight loss), then summing them would misstate pre-tax total surplus. Similarly, if the pre-tax quantity is not represented by the same x-axis cutoff as those regions, the sum would not correspond to the true pre-tax welfare.

For the incorrect options (if other letters represent regions that are not part of pre-tax consumer or producer surplus, or regions that include post-tax effects): the problem would be that those regions either double-count welfare components that do not exist pre-tax (like tax revenue) or omit portions that are indeed part of the pre-tax surplus (like portions under the demand curve or above the supply curve up to the pre-tax quantity). The key misconception would be mixing in post-tax areas (tax revenue, deadweight loss) when the question asks for pre-tax total surplus.

In the absence of the full list of options, the best approach is to map each potential region to its role in welfare calculation: pre-tax consumer surplus corresponds to the area between the demand curve and the pre-tax price, up to the pre-tax quantity; pre-tax producer surplus corresponds to the area between the pre-tax price and the supply curve, up to the same quantity. The combination of these two regions yields the total surplus before tax. If regions I, J, K, L, M, and Y collectively cover exactly these two welfare components up to the pre-tax quantity, then their sum would correctly represent pre-tax total surplus.

Note on data completeness: The original input omits the list of answer options, and it labels the correct choice as “c. I + J + K + L + M + Y.” To provide a fully grounded justification, the complete set of answer options would be needed to compare each alternative and show why only the specified combination aligns with the pre-tax total surplus. If you can share the full set of options or confirm how the regions I, J, K, L, M, and Y map to the areas in the graph, I can give a more precise, option-by-option explanation.

ECB1101 - S1 2025 Online Quiz 6

Figure 8-1Refer to Figure 8-1.Suppose the government imposes a tax of P'–P'''. Total surplus before the tax is measured by the area

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