Typically, when government imposes an ad valorem or a specific tax on producers,
A)both consumer surplus and producer surplus are reduced.
B)producer surplus is reduced to zero.
C)consumer surplus is reduced to zero.
D)consumer surplus is preserved because producers must pay the tax.
E)producer surplus is preserved because costs are passed on to consumers.

Question

Quizplus · Accepted Answer

When the government imposes a tax on producers, the cost of production increases, leading to a decrease in supply. This causes the equilibrium price to rise and the equilibrium quantity to decrease. The reduction in supply and the increase in the price lead to a decrease in consumer surplus and producer surplus. Therefore, both consumer surplus and producer surplus are reduced.

Typically, When Government Imposes an Ad Valorem or a Specific