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 not correct?
A)Compared to the original tax,the larger tax will decrease tax revenue.
B)Compared to the original tax,the smaller tax will decrease deadweight loss.
C)Compared to the original tax,the smaller tax will decrease tax revenue.
D)Compared to the original tax,the larger tax will increase deadweight loss.

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 not correct?
A)Compared to the original tax,the larger tax will decrease tax revenue. 
B)Compared to the original tax,the smaller tax will decrease deadweight loss. 
C)Compared to the original tax,the smaller tax will decrease tax revenue. 
D)Compared to the original tax,the larger tax will increase deadweight loss.

Quizplus · Accepted Answer

A larger tax generally increases tax revenue up to a certain point, after which it may decrease due to reduced quantity sold. However, initially, a larger tax is likely to increase revenue compared to a smaller tax.

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