Question

According to the Food and Drug Administration, "...the ultraviolet (UV) radiation from these devices [sunlamps and tanning beds] poses serious health risks." As a result of reading this, the local mayor decides to introduce legislation that will put a 10% excise tax on tanning consumers. From an economic point of view, this will

Answer 1

From economic point of view, a 10% excise tax on consumers will:

- Decrease market quantity traded

- Increase the price paid by consumers (thus decreasing consumer surplus)

- Decrease the price received by producers (thus decreasing producer surplus)

- Generate tax revenue (= unit tax x after-tax quantity traded), and

- Generate a social inefficiency (deadweight) loss.