Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax.As a result,it is likely that
A)tax revenue increases,and the deadweight loss increases.
B)tax revenue increases,and the deadweight loss decreases.
C)tax revenue decreases,and the deadweight loss increases.
D)tax revenue decreases,and the deadweight loss decreases.

Question

Quizplus · Accepted Answer

When the tax is increased from a "medium" tax to a "large" tax, it is likely that the price of automobile tires will increase. As a result, the quantity demanded of automobile tires will decrease due to the higher price, causing a decrease in tax revenue. Additionally, the deadweight loss is likely to increase due to the stronger disincentive for consumers to purchase tires. Therefore, the best choice is C: tax revenue decreases, and the deadweight loss increases.

Suppose the Tax on Automobile Tires Is Increased So That