If neither the demand nor supply of a good is perfectly elastic or inelastic, a tax on the good ________ consumer surplus and ________ producer surplus.

Question

Quizplus · Accepted Answer

When the demand and supply of a good are not perfectly elastic or inelastic, a tax on the good would lead to a decrease in consumer surplus and producer surplus. This is because the tax will increase the price of the good for consumers and reduce the quantity demanded, thereby decreasing consumer surplus. At the same time, producers will face a higher cost of production and receive a lower price for their goods, leading to a decrease in producer surplus. Thus, the total surplus (which is the sum of consumer surplus and producer surplus) decreases with the imposition of a tax.

If Neither the Demand nor Supply of a Good Is