Table 12-3

-Refer to Table 12-3.If the government imposes a $2.00 tax on Delights,causing the price to increase from $5.00 to $7.00,what happens to total consumer surplus
A)It falls by less than the tax revenue generated.
B)It falls by more than the tax revenue generated.
C)It falls by the same amount as the tax revenue generated.
D)It will not fall since Jennifer will no longer be in the market.

Question

Table 12-3
 
-Refer to Table 12-3.If the government imposes a $2.00 tax on Delights,causing the price to increase from $5.00 to $7.00,what happens to total consumer surplus
A)It falls by less than the tax revenue generated. 
B)It falls by more than the tax revenue generated. 
C)It falls by the same amount as the tax revenue generated. 
D)It will not fall since Jennifer will no longer be in the market.

Quizplus · Accepted Answer

When a tax is imposed on a good, the price of the good increases and the quantity demanded decreases. In this case, the price of Delights increases from $5.00 to $7.00. As a result, consumers who would have been willing to pay between $5.00 and $7.00 for Delights will no longer purchase them, reducing consumer surplus. The reduction in consumer surplus will be greater than the tax revenue generated by the government, resulting in a net loss of surplus to society. Thus, choice B is the correct answer.

Table 12-3 -Refer to Table 12-3.If the Government Imposes a $2.00 Tax