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Use a supply and demand diagram, suppose there's a valid price ceiling, say at 2. Now we add a specific tax of 1, to suppliers, what is the new consumer surplus, producer surplus, and tax revenue?

Also, if we add the tax to the consumers, again what is the consumer surplus, producer surplus and tax revenue? Here we can always assume that price ceiling is valid. I'm able to work out all these things on the diagram with price ceiling or taxation. But what if tax is levied while keeping the price ceiling?

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  • $\begingroup$ your problem doesn't have enough numbers to calculate it. What is the supply and demand equation? What are the quantities associated with those outcomes. Are you just looking for graph without any numbers? $\endgroup$
    – 1muflon1 ♦
    Aug 15 at 14:26
  • $\begingroup$ Is the ceiling a maximum producer price or a maximum consumer price? $\endgroup$
    – smcc
    Aug 15 at 14:31

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