When a Good Is Taxed

question 35

Multiple Choice

When a good is taxed,

• A)both buyers and sellers of the good are made worse off.
• B)only buyers are made worse off, because they ultimately bear the burden of the tax.
• C)only sellers are made worse off, because the government holds them responsible for sending in the tax payments.
• D)neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

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Definitions:

Total Cost

The aggregate financial sum incurred by a firm in the production of goods or services, including both fixed and variable costs.

Average Cost

The total cost of production divided by the quantity of output produced, reflecting the cost per unit of output.

Restoration Cost

The expenditure required to return a damaged asset to its previous condition or to a condition deemed acceptable.

Potential Buyers

Individuals or organizations that have the interest and ability to purchase goods or services but have not yet made a transaction.