Figure 4-9 Figure 4-9 shows the market for cigarettes.The government plans to impose a per-unit tax in this market.
-Refer to Figure 4-9.As a result of the tax,is there a loss in producer surplus?

Question

Figure 4-9  Figure 4-9 shows the market for cigarettes.The government plans to impose a per-unit tax in this market.
-Refer to Figure 4-9.As a result of the tax,is there a loss in producer surplus?

Quizplus · Accepted Answer

The imposition of a tax in the market for cigarettes will increase the price paid by consumers and reduce the quantity of cigarettes sold. As a result, producers will receive a lower price for each unit sold, leading to a decrease in producer surplus. Therefore, there will be a loss in producer surplus as a result of the tax. Option B is incorrect because although consumers bear the burden of the tax in the form of a higher price, this does not mean that producers do not incur losses. Option C is incorrect because the tax leads to a reduction in quantity and a higher price, but the market does not reach a new equilibrium. Option D is incorrect because producers cannot fully pass on the tax burden to consumers due to the increased price sensitivity of demand for cigarettes.

Figure 4-9 Figure 4-9 Shows the Market for Cigarettes