Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?
A)The tax on gasoline increases from $0.30 per gallon to $0.45 per gallon.
B)The tax on gasoline increases from $0.30 per gallon to $0.60 per gallon.
C)The tax on gasoline increases from $0.25 per gallon to $0.45 per gallon.
D)The tax on gasoline increases from $0.25 per gallon to $1.00 per gallon.

Question

Quizplus · Accepted Answer

The deadweight loss of a tax is the loss of consumer and producer surplus that results from the tax. When the tax on gasoline increases, the deadweight loss increases because the quantity of gasoline consumed decreases. The larger the tax increase, the greater the deadweight loss. Therefore, the correct answer is B, which represents the largest tax increase.

Which of the Following Events Is Consistent with an Increase