Suppose a Tax of $5 Per Unit Is Imposed on a Good,and

question 304

Multiple Choice

Suppose a tax of $5 per unit is imposed on a good,and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units.The tax decreases consumer surplus by $800 and decreases producer surplus by $700.The deadweight loss from the tax is

• A) $500.
• B) $1,000.
• C) $1,500.
• D) $2,000.

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Definitions:

MRS

The Marginal Rate of Substitution is the rate at which a consumer is willing to exchange units of one good for units of another good while maintaining the same level of utility.

Marginal Utility

Marginal utility is the additional satisfaction or utility that a consumer receives from consuming one more unit of a good or service.

Utility Maximization

A theory in economics that suggests consumers will allocate their resources to maximize their utility or satisfaction given their income and the prices of goods and services.

Consumption Good

A good that is utilized by consumers to satisfy their current wants or needs.