When a tax is imposed on a good, at the after-tax equilibrium the marginal benefit of the last unit produced ________ the marginal cost.

Question

Quizplus · Accepted Answer

When a tax is imposed on a good, it increases the cost of production and shifts the supply curve to the left. As a result, the equilibrium price increases and the quantity consumed decreases. At the new equilibrium, the marginal benefit of the last unit produced is higher than the marginal cost. This is because the new price reflects both the cost of production and the tax, so the consumer is willing to pay more than the producer incurs in cost to produce that unit. Therefore, the answer is C) is greater than.

When a Tax Is Imposed on a Good, at the After-Tax