The deadweight loss of tax on a commodity.

Question

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Answer 1

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

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Answer 2

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

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Answer 3

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

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Answer 4

Question

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

Answer 6

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

Answer 7

Chapter 8, Problem 1CQQ

To determine

The deadweight loss of tax on a commodity.

Answer 8

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'a' is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The main types of taxes includes the income tax, wealth tax and the professional tax.

When a tax is imposed on the commodity, it will lead to an increase in the price from the equilibrium level and the price to the consumer rises which will reduce the consumer surplus. The price received by the sellers also decline which will reduce the producer surplus in the economy. Thus, the total surplus which is the summation of the consumer surplus and the producer surplus will fall. This fall in the total surplus due to taxation is known as the deadweight loss due to tax.

Option (a):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Thus, option 'a' is correct.

Option (b):

When the reduction in the total surplus which is the summation of the consumer and producer surplus is higher than the total revenue generated from the taxation, there will be deadweight loss due to the tax on the commodity. Since, option 'b' explains the inverse of the actual situation, option 'b' is incorrect.

Option (c):

The tax increases the price of the commodity and reduces the consumer surplus as well as the producer surplus because it increases the price paid by the consumer and reduces the price received by the producer. The fall in the total surplus is known as the deadweight loss. Since, the total surplus is the summation of the consumer and the producer surplus, option 'c' is incorrect.

Option (d):

The fall in the total surplus is known as the deadweight loss and since the total surplus is the summation of the consumer and the producer surplus, a fall in any one of them will lead to deadweight loss and thus, option 'd' is incorrect.

Answer 12

Economics Concept Introduction

Concept introduction:

Tax: It is the unilateral payment made by the public towards the government. There are different types of taxes in the economy which includes the income tax, property tax and professional tax and so on.

Deadweight loss: It is the reduction in the units where the marginal benefit to the consumer is higher than the marginal cost of production of the unit.

Answer 13

Ch. 8.1 - Prob. 1QQ Ch. 8.2 - The demand for beer is more elastic than the...Ch. 8.3 - Prob. 3QQ Ch. 8 - Prob. 1CQQ Ch. 8 - Prob. 2CQQ Ch. 8 - Prob. 3CQQ Ch. 8 - Prob. 4CQQ Ch. 8 - Prob. 5CQQ Ch. 8 - Prob. 6CQQ Ch. 8 - Prob. 1QR

The deadweight loss of tax on a commodity.

Solution Summary: The author explains that the tax is the unilateral payment from the people to the government.

The deadweight loss of tax on a commodity.

Answer to Problem 1CQQ

Explanation of Solution

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Chapter 8 Solutions