When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

Question

Quizplus · Accepted Answer

The decrease in consumer surplus and producer surplus due to a tax depends on the elasticities of demand and supply. If demand is more elastic than supply, the decrease in producer surplus will be larger than the decrease in consumer surplus, and vice versa.

When a Tax Is Imposed on a Good, the Resulting