A tax in an efficient market:

Question

Quizplus · Accepted Answer

In an efficient market, resources are allocated in the most optimal way, resulting in maximum total surplus (consumer surplus + producer surplus). Introducing a tax in such a market would decrease the total surplus as it raises the price for consumers and reduces the profits for producers, resulting in a decrease in their respective surpluses. This decrease in total surplus implies an efficiency loss, meaning that the tax creates more costs than benefits. Therefore, option B is the correct answer.

A Tax in an Efficient Market