Figure 8-20
On the vertical axis of each graph,DWL is deadweight loss.
-Refer to Figure 8-20.Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)

Question

Figure 8-20
On the vertical axis of each graph,DWL is deadweight loss.    
-Refer to Figure 8-20.Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?
A)Panel (a) 
B)Panel (b) 
C)Panel (c) 
D)Panel (d)

Quizplus · Accepted Answer

The deadweight loss associated with a tax is the loss of consumer and producer surplus that results from the tax. The size of the deadweight loss is determined by the size of the tax and the elasticity of demand and supply for the good or service being taxed. Panel (a) shows that the deadweight loss increases as the size of the tax increases, which is consistent with the theory of taxation.

Figure 8-20 On the Vertical Axis of Each Graph,DWL Is Deadweight Loss