Answered: In a perfectly competitive market for a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In a perfectly competitive market for a good with a downward sloping demand curve and an upward sloping supply curve, the marginal social benefit is greater than the marginal social cost at the market equilibrium quantity. The government imposition of a new per-unit tax on the production of the good would

a. increase consumer surpluses

b. increase producer surplus

c. increase deadweight loss

d. have no effect on the price of the good

e. increase the quantity sold of the good

Please choose the best answer, explain why you chose that answer (include a graph as well), and justify why all the other answers are wrong.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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44. In a perfectly competitive market for a good with
a downward sloping demand curve and an upward
sloping supply curve, the marginal social benefit
is greater than the marginal social cost at the
market equilibrium quantity. The government
imposition of a new per-unit tax on the production
of the good would
(A) have no effect on the price of the good
(B) increase consumer surplus
() increase the deadweight loss
(D) increase producer surplus
(E) increase the quantity sold of the good

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