A tax on cell phones would cause all of the following except: consumer surplus to fall...

A tax on cell phones would cause all of the following except:

		consumer surplus to fall
		business profits to fall
		total surplus to increase
		deadweight loss because less trades will occur.

Solutions

Expert Solution

Total surplus to increase.

( Tax will lead to a reduction in the quantity of cellphones trades. Price of cellphones will increase. So consumer surplus will fall. On the other hand, producer surplus will fall because a part of the price will be lost in the form of taxes. Total surplus is composed of producer surplus and consumer surplus. Therefore, a reduction in Consumer surplus and producer surplus will lead to a decrease in total surplus not Increase in total surplus. )

Rahul Sunny answered 2 years ago

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