Which of the following would likely have the smallest deadweight loss relative to the tax revenue?
A)a head tax (that is,a tax everyone must pay regardless of what one does or buys)
B)an income tax
C)a tax on compact discs
D)a tax on caviar

Question

Quizplus · Accepted Answer

A head tax is a lump-sum tax that everyone pays regardless of their behavior. Since it does not affect prices and does not change relative prices in the market, it has no effect on consumer behavior or producer behavior. Thus, there is no deadweight loss associated with the tax. In contrast, an income tax, a tax on compact discs, and a tax on caviar would all lead to some level of deadweight loss since they would likely alter consumer behavior and producer behavior.

Which of the Following Would Likely Have the Smallest Deadweight