Answer
Price = 10 dollars
Quantity = 4
Overproduction = 2
Work Step by Step
Since the government implements a tax of 2 dollars per bag, the price of the good would increase by 2 dollars given ceteris paribus, and hence this is reflected by the vertical divergence between the supply curve, which is 2 dollars. Hence, since 8+2=10, the new equilibrium price is 10 dollars
Equilibrium quantity calculation:
Since new consumer surplus is given by the shaded triangle that is bounded by the equilibrium price, demand curve and price axis, at 10 dollars, the new consumer surplus can be derived from table 5.1, by adding the consumer surplus that the new buyers would have with the new price of 10 dollars
New consumer surplus = (13-10) + (12-10) + (11-10) + (10-10)
= 6
Length of the triangle (side of the price axis) = 13 - 10 = 3
Consumer surplus = 0.5 x 3 x quantity
6 = 0.5 x 3 x quantity
Quantity = 4
Overproduction before = equilibrium quantity before (from part a) - equilibrium quantity now
= 6 - 4
= 2
