In this chapter we showed how the "consumer surplus" that people receive from being able to consume a good at its current price is given by the area below the demand curve and above that price. In this problem we look at the relationship between consumer surplus and the price elasticity of demand:

a. Show graphically that the loss in consumer surplus from a given increase in price is smaller for an elastic demand curve than for an inelastic demand curve (assuming that price and quantity are the same on both curves before the price increase).

b. Suppose that the price increase described in part a came about because of the imposition of a tax per unit on purchases of these goods. Would the amount of tax revenue collected be greater with the elastic demand curve or with the inelastic demand curve? Explain your result both graphically and intuitively.

c. The "excess burden" of a tax is defined as the loss in consumer surplus from the imposition of the tax less the tax revenue actually collected. Is the excess burden of the tax described in part b larger with the elastic demand curve or with the inelastic demand curve? Explain your answer both graphically and intuitively.

d. Suppose the government wanted to choose between two taxes that raised the same amount of revenue. Should it tax the good with an elastic demand curve or the one with the inelastic demand curve? Explain.