A sales tax on sellers of a good leads to a loss of consumer surplus, but...

A sales tax on sellers of a good leads to a loss of consumer surplus, but a price ceiling or a price floor on that same product will not. True or False?

Solutions

Expert Solution

The given statement is False.

A sales tax on sellers of a good will lead to a loss of consumer surplus but a price ceiling or a price floor on the same product may also lead to a loss of consumer surplus.

Suppose a binding price ceiling is imposed which is lower than the market price which allows the consumer to purchase the good at a lower price and this would increase the consumer surplus but that does not necessarily occur.The producers will manufacture the good only if they are able to afford it ,as with a lesser price their profitability also declines.So the benefit of lower price will be offset by a decline in the availability of the good. This would lead to a loss of consumer surplus.

When a price floor is imposed on a good and the price is above the equilibrium price than the consumers will have to pay a higher price for the good and a lesser number of consumers would be able to afford it,so the consumer surplus would necessarily decline.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Find and graph the Post Tax Consumer Surplus,Producer Surplus,Tax Revenue, Dead Weight Loss, and the economic...

Find and graph the Post Tax Consumer Surplus,Producer Surplus,Tax Revenue, Dead Weight Loss, and the economic incidence of the Tax Demand is P=18-2Q Supply is P=Q Tax is $6 per unit

Define Consumer surplus, Producer surplus and Deadweight loss.

Show graphically the changes in Producer Surplus, Consumer Surplus, Deadweight Loss and Government Tax Revenue when...

Show graphically the changes in Producer Surplus, Consumer Surplus, Deadweight Loss and Government Tax Revenue when the government institutes a Tariff on imports? If the economy is a large economy show graphically an optimal tariff.

1. The demand for good B is perfectly inelastic. A sales tax is levied on sellers....

1. The demand for good B is perfectly inelastic. A sales tax is levied on sellers. A(n) ________ in the elasticity of the supply in the market for good B would tend to __________ tax revenue from that tax. a. increase; have no effect on d. increase; decrease b. decrease; decrease e. increase; increase c. decrease; increase 2. Use the following information to answer the following questions. Market for flat-screen TVs: Demand: Qd = 2,600 – 5P Supply: Qs = –1,000 + 10P Suppose a price...

In an unregulated, competitive market consumer surplus exists because: 1.some sellers are willing to take a...

In an unregulated, competitive market consumer surplus exists because: 1.some sellers are willing to take a lower price than the equilibrium price. 2.some consumers are willing to pay more than the equilibrium price. 3.some sellers will only sell at prices above equilibrium price (or actual price). 4.some consumers are willing to make purchases only if the price is below the actual price. choose 1 answer

Consumer surplus. Producer surplus. Government intervention 1. If the price of a good rises while demand...

Consumer surplus. Producer surplus. Government intervention 1. If the price of a good rises while demand remains unchanged, then total consumer surplus will _________. Decrease Increase Remain unchanged We can’t say 2. Aisha is willing to spend $15 for a haircut. If she finds a salon where the price of a haircut is only $10, she will receive ______ in consumer surplus from this transaction. $ 15 $ 5 $ 10 $ 0 3. Natasha, Nelson, and Nikolai are all...

If a tax is imposed on sellers of a good, who is more affected- buyers or...

If a tax is imposed on sellers of a good, who is more affected- buyers or sellers? Can the buyers avoid the tax altogether? Use a diagram to explain.

1)A sales tax is imposed on the sellers of gasoline. This tax shifts A the supply...

1)A sales tax is imposed on the sellers of gasoline. This tax shifts A the supply of gasoline curve rightward. B.the demand for gasoline curve leftward. C.the supply of gasoline curve leftward. D.both the supply curve of gasoline and demand curve for gasoline leftward. 2) in general, a fine on selling a product leads to the A.demand curve shifting leftward. B.supply curve shifting rightward. C.supply curve shifting leftward. D.demand curve shifting rightward 3) A natural monopoly occurs when A.a few...

A ________ consumer surplus is measured by subtracting price from the willingness to pay for a good.

A ________ consumer surplus is measured by subtracting price from the willingness to pay for a good. The market consumer surplus is measured by an area under the ________ curve and above the price up to the relevant quantity.Group of answer choicesMarket: SupplyIndividual: SupplyMarket: DemandIndividual: Demand

Consumer surplus is

Consumer surplus is a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. b. the amount a buyer is willing to pay for a good minus the cost of producing the good. c. the amount by which the quantity supplied of a good exceeds the quantity demanded of the good. d. a buyer's willingness to pay for a good plus the price of the good. b. c. d.

Subjects