The Excess Burden of a Tax Is

question 20

Multiple Choice

The excess burden of a tax is:

• A)the amount by which the price of a good increases.
• B)the loss of consumer and producer surplus that is not transferred to the government.
• C)the amount by which a person's after-tax income decreases as a result of the new tax.
• D)the welfare costs to firms forced to leave the market due to an inward shift of the demand curve.

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Definitions:

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded.

Demand

The desire and ability of consumers to purchase goods or services at a given price.

Supply

The total amount of a specific good or service that is available to consumers in a market at a given time and price.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, leading to a state of market balance.