Consumer Tax Incidence in Market Diagram

Steps:

• Pre-tax equilibrium at X sets initial price and quantity.
• Tax shifts supply curve up; new equilibrium has higher consumer price (P1 or similar) and lower quantity.
• Consumer incidence is the price rise borne by buyers, forming a rectangular area between original and new consumer price, up to post-tax quantity.
• Match areas to diagram: P2W aligns with this price wedge for consumers.

Why B is correct:

• Tax incidence on consumers is defined as the increase in price paid by buyers (Pc - P0) times post-tax quantity, matching area P2W as the buyer burden rectangle.

Why the others are wrong:

• A. PZ: Represents producer surplus loss or unrelated segment.
• C. P1WY: Includes full tax revenue triangle, not just consumer share.
• D. PXZ: Covers deadweight loss or pre-tax area, ignoring incidence split.

Final answer: B