If the government imposes a tax on a competitive market with no externalities,then
i.resource use is not efficient.
ii.there is a deadweight loss.
iii.consumer surplus is at its maximum.
A) ii only
B) i and ii
C) iii only
D) i and iii
E) i, ii, and iii

Question

Quizplus · Accepted Answer

If the government imposes a tax on a competitive market with no externalities, resource use is not efficient as some mutually beneficial trades will not occur. This leads to deadweight loss. Consumer surplus will also not be at its maximum as prices will increase and some consumers may be priced out of the market. Therefore, both i and ii are correct. However, iii is incorrect as consumer surplus will not be at its maximum.

If the Government Imposes a Tax on a Competitive Market