If a tax is imposed on buyers and prices do not instantaneously adjust, a surplus is created.

Question

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When a tax is imposed on buyers, the actual price paid by the buyers increases which results in a decrease in the demand for the product. Therefore, producers tend to reduce the price of the product to increase the demand. However, if the price is not adjusted instantaneously, it leads to a situation where buyers are not willing to purchase the product at its current price, and a surplus occurs.

If a Tax Is Imposed on Buyers and Prices Do