Scenario 8-1 Erin Would Be Willing to Pay as Much as $100

question 186

Multiple Choice

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

• A)Erin will now clean her own house.
• B)Ernesto will continue to clean Erin's house, but his producer surplus will decline.
• C)Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase.
• D)Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.

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