AP Microeconomics help; supply/demand with taxation.?

AP Microeconomics help; supply/demand with taxation.?

Postby earwine94 » Wed Mar 02, 2011 6:24 pm

The state of California recently considered passing a tax on the services of doctors in that state in order to raise revenue to pay for universal health coverage for California residents. Suppose the average open heart surgery costs $100,000, and at that price 23,339 surgeries are performed each year.

For the purpose of this analysis, assume that people could get the surgery elsewhere.

Which curve on the supply and demand graph would shift? What happens to producer and consumer surpluses? What happens to deadweight loss? Fully explain what the most likely outcome would be in this market if a tax on surgeries is implemented.

It seems that if individuals could go elsewhere to receive the treatment, the demand for surgeries in California would shift and lessen. This would lead to a loss of producer surplus and increase in consumer surplus because A) they are getting treated for less cost and B) those staying in California are using universal healthcare in order to receive the treatment - both cases, the patient gains...

It's all very confusing, and I need to be able to understand the concept for my AP exam; so please, any help would be much appreciated!
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