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A-Level Economics · Indirect tax diagram question

Which area is CONSUMER SURPLUS after the tax?

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The diagram

The answer

The triangle J A E. Below D, above the £7 consumers now pay, out to the 3 traded units: JAE — shaved down from JBG on both dimensions. Consumers pay £7 for 3 units: CS shrinks to JAE. Part of the old surplus became tax revenue (BLEA), part died in the welfare loss — that's the story worth telling in an essay.

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This is one of 9 questions on the indirect tax diagram — every corner lettered, every wrong answer diagnosed.

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