If the government desires to raise a certain amount of revenue by taxing a monopoly,an ad valorem tax will
A) generate the same loss of consumer surplus as a specific tax.
B) generate a greater loss of consumer surplus than a specific tax.
C) generate a smaller loss of consumer surplus than a specific tax.
D) generate no loss of consumer surplus.

Question

Quizplus · Accepted Answer

An ad valorem tax, which is a percentage of the price, tends to generate a smaller loss of consumer surplus compared to a specific tax, which is a fixed amount per unit, because it allows the monopoly to adjust prices more flexibly in response to changes in demand.

If the Government Desires to Raise a Certain Amount of Revenue