The imposition of a tax on a good enables the government to
A) raise the price received by sellers of the goods that have been taxed.
B) lower the price paid by buyers for the goods that have been taxed.
C) create a more efficient economic system.
D) take part of consumer and producer surplus as tax revenue when the good is purchased.
E) decrease the deadweight loss in this market.

Question

Quizplus · Accepted Answer

When a tax is imposed on a good, the price paid by buyers will increase and the price received by the seller will decrease. Therefore, part of the consumer and producer surplus is lost due to the tax. The government is able to collect this lost surplus as tax revenue, resulting in a decrease in consumer and producer surplus and an increase in tax revenue for the government.

The Imposition of a Tax on a Good Enables the Government