The excess burden of a tax is
A)the amount by which the price of a good increases.
B)the loss of consumer and producer surplus that is not transferred elsewhere.
C)The amount by which a person's after-tax income decreases as a result of the new tax.
D)the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.

Question

Quizplus · Accepted Answer

The excess burden of a tax is the loss of consumer and producer surplus that is not transferred elsewhere. It represents the deadweight loss of efficiency that results from the tax creating a wedge between the price that consumers pay and the price that producers receive. The excess burden can be thought of as the amount of economic activity that is forgone as a result of the tax.

The Excess Burden of a Tax Is