Final answer:
Tax imposition in a market reduces both producer surplus and consumer surplus, leading to a deadweight loss. Producers receive lower prices and sell fewer units, while consumers pay higher prices and buy less. Thus, producer and consumer surpluses are lower with a tax.
Step-by-step explanation:
When a tax is imposed on a market with a downward-sloped demand curve and an upward-sloped supply curve, both producer surplus and consumer surplus are affected. A tax creates a wedge between the price consumers pay and the price producers receive, ultimately reducing the quantity sold compared to the market equilibrium without a tax. Consequently, producer surplus is lower because producers receive less for each unit sold, and they sell fewer units. Similarly, consumer surplus is also lower because consumers pay a higher price and purchase less quantity. Therefore, the presence of a tax generally leads to deadweight loss— a reduction in the total surplus.
Given these circumstances, the correct answers to the question are: Producer surplus is lower when there is a tax as compared to when there is no tax; Consumer surplus is lower when there is a tax as compared to when there is no tax. The appropriate choice would be option (c) lower, lower.