Suppose the government imposes an excise tax on a good, causing the market price received by sellers to decrease. If the original equilibrium price was \$10, the new price received by sellers after the tax is \$7, and the minimum willingness to sell for a producer is \$5, what is the producer surplus for this producer after the tax?

• A. \$2
• B. \$5
• C. \$3
• D. \$7

Answer: (A)

Verified step by step guidance

1. Recall that producer surplus is the difference between the price a producer actually receives and their minimum willingness to sell (or their cost), for the quantity sold.
2. Identify the new price received by the producer after the tax, which is given as \$7.
3. Identify the minimum willingness to sell for the producer, which is given as \$5.
4. Calculate the producer surplus by subtracting the minimum willingness to sell from the price received: \(Producer\ Surplus = Price\ Received - Minimum\ Willingness\ to\ Sell\).
5. Express the producer surplus as \$7 - 5$, which represents the surplus for this producer after the tax.