When a tax is placed on a good, the revenue the government collects is exactly equal to the loss of consumer and producer surplus from the tax.

Question

Quizplus · Accepted Answer

The revenue the government collects from a tax will generally be less than the total loss of consumer and producer surplus, because some consumers and producers will reduce their purchases or production in response to the tax. The extent of this reduction, known as the deadweight loss of the tax, depends on the price elasticity of demand and supply for the good being taxed.

When a Tax Is Placed on a Good, the Revenue