Briefly describe why taxes create deadweight loss
When the government imposes a tax on a product, buyers and sellers allocate resources according to the tax incentive rather than the true costs and benefits of the good.
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Figure 7-4
Which of the following is true for the demand curve depicted in ?
a.
An increase in price from $2 to $3 will reduce total expenditures on the product.
b.
In the $2 to $3 range, the price elasticity of the demand curve is approximately unitary.
c.
At a price of $2, the price elasticity of the demand curve equals approximately -2.5.
d.
In the $2 to $3 range, the demand curve is inelastic.
Why is deflation such a problem for consumption and investment?
A. It increases the rate of both. B. It causes firms and households to spend more. C. It slows both. D. It slows investment while simultaneously increases consumption.