Assume that a tax is levied on a good and that the government uses the revenue to clean up lethal toxic waste that would cause irreparable harm to a large number of people.In this case,which of the following outcomes would NOT occur
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)an increase in the total economic welfare of society
D)a decrease in the total economic welfare of society

Question

Quizplus · Accepted Answer

The tax revenue generated will be used to clean up lethal toxic waste that would cause irreparable harm to a large number of people. Thus, the use of this revenue will increase social welfare by providing safer living conditions to the people. Therefore, there will be an increase in the total economic welfare of society. A tax on a good reduces the quantity demanded and raises the price, which leads to a decrease in consumer surplus to consumers of the taxed good (A) and a decrease in producer surplus to producers of the taxed good (B). However, the loss in consumer and producer surplus is compensated by the increase in social welfare from using the tax revenue to combat the adverse effects of the production and consumption of the taxed good. Therefore, only D is the correct answer.

Assume That a Tax Is Levied on a Good and That