The state of Oregon's wine industry specializes in the production of Pinot Noir wine, a type of red wine. Oregon's Pinot Noir is very similar to wines made in Santa Barbara and the Burgundy region of France. Oregon's Pinot Noir is also known to pair well with lamb, that is, many people choose to drink Pinot Noir while eating lamb.

For many years, states levy a special sales tax on wine often called a "sin tax". The reasoning behind these special sales taxes is that wine consumption can lead to particular social costs such as drunk driving, violence, etc.

However, many medical studies have demonstrated that moderate consumption of red wine can lower the risks for many diseases such as coronary heart disease. Thus, there are social benefits as well.

Suppose that states, in recognition of some of the benefits to wine consumption, decide to decrease the sales tax on Oregon Pinot Noir. What effect will this have on consumer surplus, producer surplus and deadweight loss.
A. Consumer surplus increases, producer surplus increases, the deadweight loss decreases.
B. Consumer surplus decreases, producer surplus decreases, the deadweight loss decreases.
C. Consumer surplus decreases, producer surplus increases, the deadweight loss is unchanged.
D. Consumer surplus increases, producer surplus increases, the deadweight loss increases.

The burden of taxes is shared by both producers and consumers, regardless of who is supposed to pay for it. By decreasing taxes, both producers and consumers will benefit, resulting in higher producer and supplier surplus. Since surplus increases, that means that the deadweight loss resulting from the tax must be decreasing.

ayokenny2001 ayokenny2001 · Answer 2 · 2022-02-15T11:58:00+01:00

If the state decides to decrease the sales tax on Oregon Pinot Noir, the effect it will have on consumer surplus, producer surplus and deadweight loss is : Consumer surplus increases, producer surplus increases, the deadweight loss decreases.

What is tax?

Tax is a compulsory levy, levied individual or entities by governments. They are a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes and properties.

With regards to the above, the burden of taxes are shared by both producers and consumers, regardless of who is supposed to pay for it.

When taxes are decreased, both producers and consumers will benefit, hence bring about higher producer and supplier surplus. Since surplus increases, that means that the deadweight loss resulting from the tax must be decreasing.

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