Answer
a) Please see the graph.
b) The price received by producers falls.
c) The price increases, and whether total spending by consumers increases or decreases depends on the elasticity of demand.
Work Step by Step
a) Before the tax, respectively, the equilibrium price and quantity are $P_{0}$ and $Q_{0}$. Total consumer spending and total producer revenue are the same, and that amount is $P_{0}*Q_{0}$. On the graph, this amount is $D+E+F+G+H$. No tax revenue is incurred since there is no tax.
When the tax is imposed, the equilibrium price and quantity are $P_{C}$ and $Q_{1}$. The price producers receive is $P_{S}$. Total consumer spending is $P_{C}*Q_{1}$, represented on the graph by the sum of areas $B+D+F+G$. Total producer revenue is $P_{S}*Q_{1}$, which is represented on the graph by the sum of areas $F+G$. Tax revenue is the difference between what consumers pay and what producers receive. The tax revenue is represented by the sum of areas $B+D$ on the graph.
b) Since neither supply is perfectly elastic nor demand is perfectly inelastic), then the producers receive less money due to the tax. The total amount received by producers decreases by the sum of areas $B+E+H$.
c) If demand is elastic, then total spending declines. (The percentage change in quantity decreases more than the percentage change in price.) If demand is inelastic, then total spending increases. (The percentage change in quantity decreases less than the percentage change in price.) Regardless of whether spending increases or decreases, the consumer surplus declines (due to the increased price and reduced quantity).
