To reduce the budget deficit, the government creates new unit taxes that generate $3 billion in...

To reduce the budget deficit, the government creates new unit taxes that generate $3 billion in revenue. How will this affect total surplus (i.e., consumer surplus + producer surplus)? a. Total surplus will be unaffected b. Total surplus will fall by less than $3 billion c. Total surplus will fall by $3 billion d. Total surplus will fall by more than $3 billion

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Expert Solution

"D"

Total surplus in the market will fall by more than $3 billion. To generate $3 billion in the market the tax wedge will cause a dead weight loss in the market of more than $3 billion , that will reduce the total surplus by more than 3 billion.

Rahul Sunny answered 1 year ago

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