A new law applied to a competitive market that requires that laid off workers be paid a large severance payment will
A)not generate a deadweight loss.
B)increase total welfare.
C)increase consumer surplus in the market.
D)decrease consumer surplus in the market.

Question

Quizplus · Accepted Answer

A new law that requires a large severance payment to laid off workers will increase the cost for firms in the market. As a result, the higher cost is likely to be passed on to the consumers in the form of higher prices. This will decrease consumer surplus in the market, resulting in a reduction in total welfare. Therefore, the correct answer is D.

A New Law Applied to a Competitive Market That Requires