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When a tax is imposed on some good, what usually happens to consumer and producer surplus? a
When a tax is imposed on some good, what usually happens to consumer and producer surplus?
a. They both increase.
b. They both fall to zero.
c. They both decrease.
d. Consumer surplus increases and producer surplus decreases.
e. Consumer surplus decreases and producer surplus increases.
Expert Solution
c. They both decrease.
Whenever a tax is imposed on goods by the government it lessens the welfare of both purchasers i.e (consumer surplus)as well as sellers (producer surplus).At the point when the government imposes a tax, the price paid by purchasers increments while the price received by sellers diminishes meaning both the consumer as well as producer surplus reduces.
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