Figure 8-22
-Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is correct?
A)Compared to the original tax,the smaller tax will decrease both tax revenue and deadweight loss.
B)Compared to the original tax,the larger tax will increase both tax revenue and deadweight loss.
C)Compared to the original tax,the larger tax will decrease tax revenue and increase deadweight loss.
D)Both a and b are correct.

Question

Figure 8-22 
-Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is correct?
A)Compared to the original tax,the smaller tax will decrease both tax revenue and deadweight loss. 
B)Compared to the original tax,the larger tax will increase both tax revenue and deadweight loss. 
C)Compared to the original tax,the larger tax will decrease tax revenue and increase deadweight loss. 
D)Both a and b are correct.

Quizplus · Accepted Answer

A smaller tax decreases both tax revenue and deadweight loss, while a larger tax increases both tax revenue and deadweight loss, assuming the tax is not beyond the revenue-maximizing point.

Figure 8-22 -Refer to Figure 8-22.Suppose the Government Initially Imposes a $3