What happens to the total surplus in a market when the government imposes a tax?
A)Total surplus increases by the amount of the tax.
B)Total surplus increases but by less than the amount of the tax.
C)Total surplus decreases.
D)Total surplus is unaffected by the tax.

Question

Quizplus · Accepted Answer

Total surplus decreases when the government imposes a tax because the tax creates a wedge between the price buyers pay and the price sellers receive, leading to a reduction in the quantity traded. This results in a loss of efficiency in the market, as some trades that would have been mutually beneficial without the tax do not occur, leading to a deadweight loss.

What Happens to the Total Surplus in a Market When