Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 8 - Part III - Application: The Costs of Taxation - Questions for Review - Page 168: 1

Answer

When a good is taxed then the consumer and producer surplus decline. The tax on buyers and sellers is greater than what the government gains in revenue so the end result is an inefficient allocation of resources.

Work Step by Step

Government intervention through the form of taxation can heavily impact society because it leads buyers and sellers to inefficiency and this inefficiency causes the misallocation of resources.
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