📚 Learning Guide
Understanding Per-Unit Taxes
easy

How do per-unit taxes typically affect consumer and producer surplus in a market?

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Learning Path
Learning Path

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Choose the Best Answer

A

Both consumer and producer surplus increase

B

Consumer surplus decreases while producer surplus increases

C

Consumer surplus decreases and producer surplus decreases

D

Both consumer and producer surplus remain unchanged

Understanding the Answer

Let's break down why this is correct

Answer

Per-unit taxes are fees that the government charges for each unit of a good sold. When a per-unit tax is applied, it increases the price that consumers have to pay while decreasing the price that producers receive. This change causes consumer surplus, which is the benefit consumers get from buying a product for less than what they would be willing to pay, to decrease because they pay more. Similarly, producer surplus, the benefit producers receive from selling at a higher price than their minimum acceptable price, also decreases because they receive less money for their goods. For example, if a tax of $2 is added to a product that originally costs $10, consumers might now pay $12, reducing their overall satisfaction and reducing the profit for producers.

Detailed Explanation

When a tax is added, it raises prices for consumers and lowers the amount producers receive. Other options are incorrect because Some might think both groups gain from a tax; This option suggests that producers benefit while consumers lose.

Key Concepts

economic welfare effects
Topic

Understanding Per-Unit Taxes

Difficulty

easy level question

Cognitive Level

understand

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