I had a question on how an excise tax per unit of good produced for a producer would affect total revenue for a producer of that good. The graph is that supply is perfectly elastic (horizontal) and the demand is normal or relatively unit elastic (any standard demand curve basically) and a tax is imposed on producer. Does the total revenue increase, decrease or stay the same for the producer and what would happen to producer and consumer surplus (decrease, increase or stay the same)???
closed as off-topic by Giskard, Herr K., luchonacho, Adam Bailey, BB King May 20 '17 at 13:08
This question appears to be off-topic. The users who voted to close gave this specific reason:
Supply shifts from S to S1, which leads to price rising from P to P1 and quantity exchanged dropping from Q to Q1. Recall the formula for total revenue TR=Price*Quantity, so in the diagram the initial revenue level is OPBQ, and after the tax is OP1AQ1. The change in revenue will depend on the size of the tax and the size of the decrease in quantity consumed. Producer surplus is zero both before and after the tax, while consumer surplus decreases from CBP to CAP1.