Suppose the government places a tax on a product.How does the cost of the tax compare with the revenue raised
A)The cost of the tax to buyers and sellers is less than the revenue raised from the tax by the government.
B)The cost of the tax to buyers and sellers equals the revenue raised from the tax by the government.
C)The cost of the tax to buyers and sellers exceeds the revenue raised from the tax by the government.
D)Without additional information, such as the elasticity of demand for this product, it is impossible to compare tax cost with tax revenue.

Question

Quizplus · Accepted Answer

The cost of the tax to buyers and sellers exceeds the revenue raised from the tax due to the deadweight loss, which is the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Suppose the Government Places a Tax on a Product