Figure 5.7 Figure 5.7 shows the market for beer.The government plans to impose a unit tax in this market.
-Refer to Figure 5.7.As a result of the tax, is there a loss in consumer surplus?

Question

Figure 5.7  Figure 5.7 shows the market for beer.The government plans to impose a unit tax in this market.
-Refer to Figure 5.7.As a result of the tax, is there a loss in consumer surplus?

Quizplus · Accepted Answer

The imposition of a unit tax in the market for beer would lead to an increase in the price paid by consumers above the original equilibrium price. This would result in a decrease in the quantity consumed, and hence a reduction in consumer surplus. Therefore, there is a loss in consumer surplus as a result of the tax. Option B is incorrect because the producer ultimately passes on the burden of the tax to the consumers through higher prices. Option C is incorrect because the new equilibrium reflects a reduction in consumer welfare due to the tax. Option D is incorrect because even though consumers may pay a lower price per unit, the tax will still result in a decrease in consumer surplus.

Figure 57 Figure 5