Which of the following is true?
A)Once the equilibrium price and output is reached, all the mutually beneficial trade opportunities between suppliers and demanders will have taken place, and the sum of consumer and producer surplus is maximized.
B)The deadweight loss of a tax is the difference between the lost consumer and producer surplus and the tax revenue generated.
C)Those goods that are heavily taxed often have a relatively inelastic demand curve in the short run, so that the burden falls mainly on the buyer, and the deadweight loss to society is smaller than if the demand curve was more elastic.
D)All of the above are true.

Question

Which of the following is true?​
A)​Once the equilibrium price and output is reached, all the mutually beneficial trade opportunities between suppliers and demanders will have taken place, and the sum of consumer and producer surplus is maximized.
B)​The deadweight loss of a tax is the difference between the lost consumer and producer surplus and the tax revenue generated.
C)​Those goods that are heavily taxed often have a relatively inelastic demand curve in the short run, so that the burden falls mainly on the buyer, and the deadweight loss to society is smaller than if the demand curve was more elastic.
D)​All of the above are true.

Quizplus · Accepted Answer

A - This is a key concept in microeconomics. At equilibrium price and output, there is no more potential gain from trade and the sum of consumer and producer surplus is maximized.
B - The deadweight loss is a measure of the inefficiency created by a tax, resulting from the reduction in the quantity traded and the distortion of incentives for both buyers and sellers. It can be calculated as the reduction in total surplus minus the tax revenue collected.
C - This is also true. If the demand curve is relatively inelastic, buyers are less responsive to price changes, so they bear more of the tax burden. Therefore, the deadweight loss may be smaller in magnitude compared to a scenario with a more elastic demand curve, where buyers would reduce their quantity demanded by a larger amount, causing a larger reduction in total surplus.

Which of the Following Is True?​

Which of the Following Is True?