Final answer:
The statement that specific tax and an ad valorem tax on monopoly have the same impact on social welfare is false as they affect pricing, output, and welfare differently. Tax revenues are vital for governments, but the impact of taxes on the economy varies based on their design and market conditions.
Step-by-step explanation:
The statement that 'specific tax and an ad valorem tax on monopoly have the same impact on social welfare' is generally considered false. These two types of taxes can have different impacts on a monopoly's pricing, output, and thus on social welfare. A specific tax, which is a fixed amount charged per unit of a good or service, will shift the monopoly's marginal cost curve upward by the amount of the tax. An ad valorem tax, on the other hand, is a percentage of the good's price and affects the price and quantity sold differently, depending on the elasticity of demand.
Tax revenues are critical for government operations, and the type of tax implemented can impact economic behavior and resource allocation. A poorly designed tax can lead to inefficiencies, while an appropriately designed tax can generate necessary tax revenue without causing significant distortions in the market. Economists aim to create a tax system that balances the need to raise revenue with the goal of minimizing these distortions.
In the case of a monopoly, taxes can alter the monopolist's behavior, potentially affecting the market price, consumer welfare, and overall social welfare. Ultimately, the impact on social welfare as a result of taxing a monopoly will depend on how the tax is structured and on the specific market conditions.