Tax Removal Effects on Revenue and Surplus

Steps:

• Identify tax revenue as the rectangle between buyer and seller prices times quantity traded, labeled x+y.
• Determine consumer surplus gain as the area under demand curve from post-tax to pre-tax quantity, including consumer tax burden (x) and deadweight loss triangle (z).
• Confirm loss in tax revenue equals full pre-tax rectangle (x+y) now transferred or lost.
• Verify gain excludes producer surplus recovery (y) and other areas like w.

Why D is correct:

• Matches standard tax incidence: tax revenue loss is full rectangle (x+y); consumer surplus rises by consumer tax share (x) plus DWL triangle (z), per surplus definition.

Why the others are wrong:

• A: Mislabels consumer gain as w+y, ignoring DWL recovery (z).
• B: Undervalues consumer gain (z only) and ignores consumer tax burden recovery.
• C: Duplicates x in both, confusing tax loss with surplus components.

Final answer: D