When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

Question

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When a tax is imposed on buyers, it effectively raises the price they have to pay, which reduces the quantity demanded. This leads to a decrease in consumer surplus because buyers are either paying more for the same amount of goods or buying less at higher prices. Producer surplus also decreases because the effective demand for their product is reduced, leading to lower sales or prices received by sellers.

When a Tax Is Imposed on Buyers, Consumer Surplus and Producer