The excess burden of a tax is:
A)the amount by which the price of a good increases.
B)the loss of consumer and producer surplus that is not transferred to the government.
C)the amount by which a person's after-tax income decreases as a result of the new tax.
D)the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.

Question

Quizplus · Accepted Answer

The excess burden of a tax is the loss of consumer and producer surplus that is not transferred to the government. Essentially, it is the deadweight loss created by the tax - the efficiency loss from the market no longer being perfectly efficient. The answer choices A, C, and D do not accurately describe the excess burden of a tax.

The Excess Burden of a Tax Is