Which of the following quantities decrease in response to a tax on a good?
A)The equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
B)The equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
C)The effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
D)It depends on whether the tax is levied on buyers or on sellers.

Question

Quizplus · Accepted Answer

A tax on a good typically leads to a decrease in the equilibrium quantity in the market because the cost of the good increases, leading to lower demand. Producer surplus decreases because sellers receive less for their goods due to the tax. The well-being of buyers also decreases as they either pay more for the good or buy less of it, reducing consumer surplus.

Which of the Following Quantities Decrease in Response to a Tax