A Tax Wedge Causes

question 11

Multiple Choice

A tax wedge causes

• A) consumer prices to equal producer prices.
• B) producer prices to rise above consumer prices.
• C) consumer prices to separate from producer prices.
• D) all prices to fall.

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Definitions:

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive, typically measured as the area above the supply curve and below the market price.

Marginal Benefit

The heightened satisfaction or usefulness derived from the consumption of an extra unit of a good or service.

Marginal Cost

The cost added by producing one extra item of a product. It's a critical concept in economics for determining the optimum production level.

Supply-Side Market Failures

Overallocations of resources that occur when private supply curves understate the full cost of producing a good or service.