The supply curve and the demand curve for a good are straight lines.When the good is taxed,the area on the relevant supply-and-demand graph that represents the deadweight loss is
A)larger than the area that represents consumer surplus in the absence of the tax.
B)larger than the area that represents government's tax revenue.
C)a triangle.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When a good is taxed, a portion of the consumer surplus and producer surplus is lost. The deadweight loss is the inefficiency caused by the tax, and it is represented by the reduction in consumer and producer surplus. The deadweight loss area on the supply-and-demand graph is always a triangle, and it is located between the new post-tax quantity and the quantity that would have been exchanged in the absence of the tax. The deadweight loss area is not larger than the area of consumer surplus or government tax revenue. Therefore, the correct answer is C.

The Supply Curve and the Demand Curve for a Good