If the government imposes a tax on a competitive market with no externalities, then i. resource use is not efficient.
Ii) there is a deadweight loss.
Iii) consumer surplus is at its maximum.

Question

Quizplus · Accepted Answer

When the government imposes a tax on a competitive market with no externalities, it will lead to a decrease in the quantity demanded and an increase in the quantity supplied. The deadweight loss occurs as a result of the decrease in consumer and producer surplus, which is a loss of economic welfare that occurs when the tax is implemented. Additionally, the tax makes resource use less efficient since it alters the price that consumers are willing to pay for the good or service. However, consumer surplus is not at its maximum as the tax leads to a reduction in consumer welfare.

If the Government Imposes a Tax on a Competitive Market