When a tax is imposed on a market, the government collects revenues.These revenues however, are less than the loss in consumer surplus and producer surplus.

Question

Quizplus · Accepted Answer

When a tax is imposed on a market, it creates a deadweight loss as it reduces the quantity traded and causes inefficiency in the market. This results in a loss in consumer surplus and producer surplus that exceeds the revenue collected by the government.

When a Tax Is Imposed on a Market, the Government