Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?
a. Both the size of the deadweight loss and tax revenue increase.
b. The size of the deadweight loss increases, but the tax revenue decreases.
c. The size of the deadweight loss increases, but the tax revenue first increases, then decreases.
d. Both the size of the deadweight loss and tax revenue decrease.
c
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For a product with external benefits that is produced in a competitive, unregulated market, how can the resulting market output be described?
A) underproduction compared to the efficient level B) overproduction compared to the efficient level C) production equals the efficient level D) Underproduction or overproduction are both possible depending on whether the external benefit is to consumption or production. E) None of the above is correct.
If the price of a good increases, all else equal, consumers perceive
a. an increase in purchasing power if the good is an inferior good. b. an increase in income if the price increase occurs for a normal good. c. a decrease in purchasing power. d. a net gain in purchasing power if they decrease consumption of some goods.