When taxes are levied on transactions,irrespective of the party they are levied on,

Question

​When taxes are levied on transactions,irrespective of the party they are levied on,

Quizplus · Accepted Answer

When taxes are levied on transactions, it is likely that some of the economic surplus will be absorbed by the government as revenue. However, taxes also create a social loss as some transactions that would have been beneficial for both parties are now discouraged due to the increased cost. Therefore, option C is the correct answer as it acknowledges both the revenue aspect of taxation and the social loss associated with it. However, options A and D are incorrect as they assume that all surplus is absorbed by the government, which is not always the case. Option B is also incorrect as it assumes that only the producer surplus is absorbed by the government, which is not true in reality.

​When Taxes Are Levied on Transactions,irrespective of the Party They

When Taxes Are Levied on Transactions,irrespective of the Party They