Assume that a tax is levied on a good and the government uses the funds to build statues of former prime ministers.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 decrease in the welfare of society that exceeded the deadweight economic loss from the tax
D)all of the above would occur

Question

Quizplus · Accepted Answer

A tax on a good would increase the price to consumers, thereby reducing their consumer surplus (Choice A). The tax would also increase the cost to producers, thereby reducing their producer surplus (Choice B). Finally, the use of tax revenue to build statues of former prime ministers may not necessarily improve the overall welfare of society, and may even result in a deadweight economic loss that exceeds any gains from the statues (Choice C). Therefore, all of the above (Choices A, B, and C) would occur.

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