Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose 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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