Question

Claudia would be willing to pay as much as $100 per week to have her house cleaned. John's opportunity cost of cleaning Claudia’s house is $70 per week. Assume Claudia 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?

Claudiacleansherownhouseasitsbeneficialtohercomparedtootheralternatives

A Claudia will now clean her own house

B John will continue to clean Claudia’s house, but his producer surplus will decline.

C Claudia will continue to hire John to clean her house, but her consumer surplus will decline.

D Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase

E None of these

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