Surplus areas after an excise tax

Start with what the tax does. Supply shifts up by t. The new equilibrium is where supply after tax meets demand: quantity falls to Q1, buyers pay P3, and sellers keep P3 minus t, which is P1.

Now sort the areas.

1. Consumer surplus is the area under demand and above the price buyers pay, out to Q1. With buyers paying P3, that leaves only A.
2. Producer surplus is the area above the original supply curve and below the price sellers keep, out to Q1. Sellers keep P1, so that is G.
3. Tax revenue is t times Q1, the band from P1 up to P3 out to Q1. That is B, C, H and F. It goes to the government, so it is surplus for neither buyers nor sellers.
4. Deadweight loss is the surplus on the units between Q1 and Q2 that no longer trade: D and E.

So the answer reads A, G and D + E.

Each choice

• A (correct). Buyers keep A above P3, sellers keep G below P1, and the triangles D and E on the lost units are deadweight loss.
• B. Consumer surplus and deadweight loss are right, but F lies inside the tax band, between P1 and P3, so it is revenue, and E is a lost trade, not producer surplus.
• C. B is inside the tax band, so it is tax revenue, not consumer surplus. C is tax revenue too, so it does not belong in the deadweight loss.
• D. B and H are part of the tax revenue, not consumer surplus, and F is revenue as well. This counts revenue as surplus for both groups.
• E. This gives part of the tax revenue to consumers and part to producers, and it counts only E as lost. D is also surplus on units that are no longer traded.