Figure 8-3
The vertical distance between points A and B represents a tax in the market.
-Refer to Figure 8-3. Suppose a 20th unit of the good were sold by a seller to a buyer. Which of the following statements is correct?
A)For the 20th unit, the difference between the buyer's value and the seller's cost is less than the tax per unit.
B)For the 20th unit, the difference between the buyer's value and the seller's cost is greater than the tax per unit.
C)For the 20th unit, the difference between the buyer's value and the seller's cost is equal to the tax per unit.
D)It makes sense for the buyer to buy and for the seller to sell the 20th unit, with or without the tax in place.

Question

Figure 8-3
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-3. Suppose a 20th unit of the good were sold by a seller to a buyer. Which of the following statements is correct?
A)For the 20th unit, the difference between the buyer's value and the seller's cost is less than the tax per unit. 
B)For the 20th unit, the difference between the buyer's value and the seller's cost is greater than the tax per unit. 
C)For the 20th unit, the difference between the buyer's value and the seller's cost is equal to the tax per unit. 
D)It makes sense for the buyer to buy and for the seller to sell the 20th unit, with or without the tax in place.

Quizplus · Accepted Answer

Without seeing Figure 8-3, we can infer that for the 20th unit, if the statement is considered correct, the difference between the buyer's value and the seller's cost must be less than the tax per unit. This implies that the tax on the unit makes the transaction less appealing, as the tax exceeds the economic benefit (difference between value to the buyer and cost to the seller) of trading that unit.

Figure 8-3 the Vertical Distance Between Points a and B Represents a Represents