If neither the demand nor supply of a good is perfectly elastic or inelastic,a tax on the good ________ consumer surplus and ________ producer surplus.
A) decreases; decreases
B) increases; increases
C) decreases; increases
D) increases; decreases
E) decreases; does not change

Question

Quizplus · Accepted Answer

A tax on a good generally decreases both consumer surplus and producer surplus because it raises the price buyers pay and lowers the price sellers receive, thus reducing the quantity sold and leading to losses in economic efficiency for both consumers and producers.

If Neither the Demand nor Supply of a Good Is