A Tax of $0

question 125

Multiple Choice

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

• A)decreases consumer surplus by $645 per day.
• B)decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
• C)decreases total surplus from $3,000 to $1,800 per day.
• D)creates a deadweight loss of $15 per day.

Distinguish between disinflation, deflation, and the impact on purchasing power.

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Definitions:

Increasing Cost Industry

An industry in which costs of production increase as firms enter the market, often due to limited resources or factors of production becoming more expensive.

Long-Run Supply Curve

A graphical representation that shows how the quantity supplied reacts to price changes in the long-term, accounting for all factors of production adjustments.

Increasing Cost Industry

An industry in which the costs of production increase as the industry's output expands, typically due to resource limitations.

Decreasing-Cost Industry

An industry where the average cost of production decreases as the industry's output increases, often due to economies of scale.