suppose now the inputs of mangoes are taxed. draw the graph to show the economic effects if demand is elastic
To understand the economic effects of taxing inputs for mangoes when demand is elastic, we need to analyze the change in producer and consumer surplus, as well as the deadweight loss. Here's how you can draw the graph step by step:
Step 1: Start with a typical supply and demand graph. On the horizontal axis, plot the quantity of mangoes, and on the vertical axis, plot the price of mangoes.
Step 2: Draw the initial demand curve (D0) sloping downward from left to right. Label it as D0.
Step 3: Draw the initial supply curve (S0) sloping upwards from left to right. Label it as S0.
Step 4: Identify the equilibrium price and quantity (P0, Q0) where the initial supply and demand curves intersect.
Step 5: Indicate the initial consumer surplus and producer surplus on the graph. Consumer surplus is the area above the price and below the demand curve, while producer surplus is the area below the price and above the supply curve.
Step 6: Now, introduce the tax on the inputs of mangoes. This tax will shift the supply curve upwards. Draw a new supply curve (S1) that is higher than S0.
Step 7: Note that because demand is elastic, the new equilibrium quantity (Q1) will decrease, and the new equilibrium price (P1) will increase, compared to the initial equilibrium point.
Step 8: Calculate the new consumer surplus and producer surplus. The change in consumer surplus will be the decrease in area above the new price (P1) and below the new demand curve. The change in producer surplus will be the decrease in area below the new price (P1) and above the new supply curve.
Step 9: The deadweight loss represents the loss of overall economic efficiency due to the tax. It is the area between the new supply curve (S1) and the demand curve (D0) from the initial equilibrium quantity (Q0) to the new equilibrium quantity (Q1).
Step 10: Lastly, label the new consumer surplus, producer surplus, and deadweight loss on the graph.
By following these steps, you can effectively depict the economic effects of taxing mango inputs when demand is elastic.