The introduction of a tax in a perfectly competitive marketplace that is originally in equilibrium will lower total surplus.

Question

Quizplus · Accepted Answer

When a tax is introduced in a perfectly competitive marketplace, it increases the cost of production for producers, leading to a decrease in supply. This results in an increase in price, decreasing consumer surplus. Additionally, the decrease in supply and producer surplus leads to a decrease in total surplus. Therefore, the introduction of a tax in a perfectly competitive marketplace will lower total surplus.

The Introduction of a Tax in a Perfectly Competitive Marketplace