As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on,the
A)tax revenue increases at first,but it eventually peaks and then decreases.
B)deadweight loss increases at first,but it eventually peaks and then decreases.
C)tax revenue always increases,and the deadweight loss always increases.
D)tax revenue always decreases,and the deadweight loss always increases.

Question

Quizplus · Accepted Answer

When a tax on a good increases, the tax revenue initially increases, but as the tax rate continues to increase, the quantity demanded of the good decreases, resulting in a decrease in tax revenue. This is why tax revenue eventually peaks and then decreases. Additionally, the deadweight loss of a tax increases as the tax rate increases, but eventually, it reaches a peak and then decreases due to a reduction in quantity demanded. Therefore, option A is the best choice.

As the Tax on a Good Increases from $1 Per