In a market with an upward-sloping supply curve and a downward-sloping demand curve, the effects of an excise tax are as follows except:
A)Consumer surplus will be lower than with no tax.
B)Producer surplus will be lower than with no tax.
C)The impact on the government budget will be positive.
D)The tax will generally lead to a deadweight gain.

Question

Quizplus · Accepted Answer

The imposition of an excise tax in a market typically leads to a deadweight loss, not a gain. This loss represents the reduction in economic efficiency that occurs when the tax causes the quantity traded to decrease from the equilibrium level, leading to less total surplus in the market.

In a Market with an Upward-Sloping Supply Curve and a Downward-Sloping