Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A β B β C β D
B
A β C β B β D
C
B β A β D β C
D
C β A β B β D
Understanding the Answer
Let's break down why this is correct
Answer
To understand the impact of a tax on market efficiency and the resulting deadweight loss, we start with the imposition of a tax on a good, which is step A. Once the tax is in place, it affects prices, leading to an increase in consumer prices and a decrease in producer prices, which is step B. This change in prices disrupts the market equilibrium, as buyers and sellers adjust their behavior in response to the new prices, which is step C. As a result of these changes, fewer transactions occur in the market, leading to a deadweight loss, which is step D. For example, if a tax is added to soda, consumers might buy less soda because it is more expensive, and producers might sell less because they earn less, creating inefficiency in the market.
Detailed Explanation
First, a tax is added to a good. Other options are incorrect because This option suggests the market balance is disrupted before prices change; This choice puts prices before the tax is applied.
Key Concepts
Tax Burden
Deadweight Loss
Market Efficiency
Topic
Tax Burden and Deadweight Loss
Difficulty
hard level question
Cognitive Level
understand
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