The inverse demand function for video games is p = 240 - 2q and the inverse supply function is p = 3 + q.When the government imposes a $6 tax on each video game purchased,
A)consumer's surplus falls by more than producer's surplus.
B)producer's surplus falls by more than consumer's surplus.
C)consumer's surplus and producer's surplus fall by the same amount.
D)consumer's surplus falls and producer's surplus increases.
E)producer's surplus falls and consumer's surplus increases.

Question

Quizplus · Accepted Answer

When a tax is imposed on a good, both consumer surplus and producer surplus typically decrease because the tax creates a wedge between the price buyers pay and the price sellers receive, leading to a decrease in the quantity traded. The distribution of the tax burden between consumers and producers depends on the relative elasticities of demand and supply. However, without specific elasticity information, we cannot determine the exact distribution of the tax burden. Generally, the party (consumers or producers) with the less elastic curve will bear a larger share of the tax burden. The statement that consumer's surplus falls by more than producer's surplus is a plausible outcome, but without elasticity information, it's not possible to definitively say which surplus falls more based on the given functions alone. This choice is selected based on the general understanding of tax incidence and its impact on surplus, but the specific outcome would depend on further details about the demand and supply elasticities.

The Inverse Demand Function for Video Games Is P =