A consumer values a car at $30,000 and a producer values the same car at $20,000.The transaction will not take place if a tax is imposed

Question

​A consumer values a car at $30,000 and a producer values the same car at $20,000.The transaction will not take place if a tax is imposed

Quizplus · Accepted Answer

The transaction will not take place if the tax is larger than the total surplus, which is the sum of the seller surplus and buyer surplus. In this case, the seller surplus is $10,000 ($30,000 - $20,000), and the buyer surplus is $20,000 ($30,000 - the price they would pay). Therefore, the total surplus is $30,000. If the tax imposed is larger than $30,000, neither the buyer nor the seller would find it worthwhile to trade and the transaction will not take place.

​A Consumer Values a Car at $30,000 and a Producer

A Consumer Values a Car at $30,000 and a Producer