Assume that a tax is levied on a good and the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people.In this case there would be:
A)a decrease in consumer surplus to consumers of the taxed good
B)a decrease in producer surplus to producers of the taxed good
C)a probable increase in the total economic welfare of society
D)all of the above would occur

Question

Quizplus · Accepted Answer

A tax on a good typically results in a decrease in consumer surplus because consumers end up paying more for less quantity. Similarly, producer surplus decreases because producers receive less for their goods due to the tax. However, if the tax revenue is used for a beneficial purpose like cleaning up lethal toxic waste, it can lead to an increase in the total economic welfare of society by preventing harm to a large number of people. Therefore, all of the mentioned effects would occur.

Assume That a Tax Is Levied on a Good and the Government