In an otherwise efficient market,an excise tax causes ________ because it distorts the relationship between ________.
A)allocative inefficiency; prices and marginal costs
B)allocative inefficiency; pre-tax price and the tax price
C)productive inefficiency; costs and output
D)market inefficiencies; prices of similar goods
E)voter resentment; income and ability to pay

Question

Quizplus · Accepted Answer

An excise tax causes allocative inefficiency because it distorts the relationship between prices and marginal costs. The tax increases the production cost of the good or service, which leads to a higher price for consumers, causing a reduction in demand. As a result, the quantity produced and consumed will be less than the socially efficient level, leading to allocative inefficiency.

In an Otherwise Efficient Market,an Excise Tax Causes ________ Because