Option A is correct because taxes increase the price paid by buyers and decrease the price received by sellers. Option B is correct because taxes decrease the quantity of goods traded, leading to a reduction in both consumer and producer surplus. Option C is incorrect because the question is about taxes which generate government revenue, not decrease government spending.

Solved

A Tax

Question 46

Multiple Choice

A tax

A) places a wedge between the price paid by the buyers and the price received by the sellers.
B) reduces consumer surplus and producer surplus.
C) decreases government spending.
D) Both answers A and B are correct.
E) None of the above answers are correct.

Correct Answer: